^ 


PROCEEDINGS 

OF  THE 

SECOND  ANNUAL  NATIONAL  MINE 
TAX  CONFERENCE 


At  the 

Twenty-Fourth  Annual  Convention 
ol 
THE  AMERICAN  MINING  CONGRESS 


Chicago,  Illinois,  October  17  to  22,  1921 


TAX  COMMITTEE 
AMERICAN  MINING  CONGRESS 

Paul  Armitage,  Chairman,  New  York  City 
A.  Scott  Thompson,  Miami,  Oklahoma 
John  C.  Howard,  Salt  Lake  City 
George  £.  Holmes,  New  York  City 
E.  L.  Doheny,  Los  Angeles,  Calif. 
R.  C.  Allen,  Cleveland,  Ohio 
A.  P.  Ramstedt,  Wallace,  Idaho 


McK.  W.  Kriegh,  Chief,  Tax  Division,  A.  M.  C,  Secretary 


NATIONAL  MINE  TAX  CONFERENCE 


NATIONAL  MINE  TAX  CONFERENCE 

TUESDAY  AFTERNOON  SESSION,  OCTOBER  18,  1921 

The  opening  session  of  the  National  Mine  Tax  Conference, 
held  in  connection  with  the  American  Mining  Congress  at  Chi- 
cago, was  called  to  order  at  2:45  p.  m.,  by  Mr.  Paul  Armitage, 
presiding. 

CHAIRMAN  ARMITAGE:  The  particular  subject  of  the 
meeting  today  is  uniformity  in  taxation  of  mines  among  the  vari- 
ous states.  There  are  three  distinct  and  mutual  inconsistent 
points  of  view  of  taxing  mines  that  have  prevailed  among  the 
various  states ;  one  of  these  is  a  policy  of  subsidization,  the  next 
is  a  policy  of  equalization,  and  the  third  is  a  policy  of  penalizing 
the  mines.  There  has  been  a  progressive  movement  in  recent 
years  among  the  states  toward  .the  penalization  of  mines  par- 
ticularly in  certain  states.  That  movement  has  been  growing 
in  force  until  in  certain  states  the  mines  are  in  a  position  where 
they  can  not  operate  against  that  penalization.  That  was  partly 
due  to  the  enormous  profits  that  were  made  by  certain  of  the 
industries  during  the  war,  partly  due  to  a  progressive  tendency 
of  operation  of  mines  and  mining  industry,  and  partly  due 
to  a  growing  tendency  among  the  states  of  extravagance  in 
expenditure. 

Now  the  first  important  thing  for  us  to  dwell  upon  'here  is  this 
fact  that  mines  are  a  national  and  in  part  an  international  enter- 
prise. They  are  not  a  local  enterprise.  In  that  respect  they  are 
entirely  distinct  from  real  property.  Real  property,  for  example, 
in  matters  of  taxation  is  almost  entirely  local,  it  does  not  compete 
with  any  property  outside  of  the  state.  On  the  contrary,  mines 
are  not  local,  they  do  not  sell  their  produce  in  the  states,  they  sell 
them  over  the  entire  country  in  competition  with  mines  of  other 
states  and  mines  of  other  countries.  Therefore,  the  need  ot 
uniformity  of  taxation  becomes  paramount. 

From  a  point  of  view  of  production  a  mine  is  local.  It  pro- 
duces in  the  state.  But  from  the  point  of  view  of  distribution 
and  sale,  it  is  national.  The  sale  of  its  product  is  really  the  point 
of  contact  in  which  the  mine  comes  in  competition  with  other 
mines.  That  is  the  point  of  stress.  If,  at  this  point,  it  can 
measure  up  to  the  other  mines  that  it  meets,  if  it  can  compete 
with  them  and  sell  its  product,  it  succeeds;  if  it  can't,  it  goes 
under.  Cost  of  production  is  an  important  factor,  therefore,  in 
that  competition  and  one  of  the  elements  of  cost  of  production 
is  the  local  taxes.  If  we  look  upon  local  taxes  merely  as  an 
element  of  cost  of  production,  an  item  in  cost  of  production,  we 


A  r'  r*  ^  ►^  >^ 


4         PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

will  see  how  important  it  is  that  that  particular  element  be  made 
uniform  as  far  as  possible. 

The  federal  taxes  are  uniform  all  over  the  country.  The  state 
taxes  are  far  from  uniform.  One  state  levies  taxes  on  certain 
industries  at  the  rate  of  1.7  cents  per  pound,  another  state  levies 
them  at  the  rate  of  one-half  a  cent  per  pound.  How  can  indus- 
tries in  those  two  states  compete  on  equal  terms  with  those 
conditions? 

The  three  great  things  that  are  worrying  the  mining  industry 
today  are :  high  cost  of  wages  and  labor,  high  cost  of  transporta- 
tion, and  high  and  discriminatory  and  un-uniform  taxes.  The 
railroads  are  recognizing  that  and  are  endeavoring  to  make  their 
rates  uniform.  The  illustration  of  that  is  the  long  and  short 
haul.  For  example,  the  mines  get  a  rate  on  copper,  with  which 
I  am  familiar,  to  the  seaboard,  to  the  East,  of  $16.50  per  ton. 
That  rate  is  almost  uniform  in  Montana,  in  Arizona,  in  Utah, 
and  elsewhere.  Wages  are  mobile.  They  take  care  of  them- 
selves more  or  less.  If  there  is  a  tendency  to  equalize  wages  in 
different  states,  the  taxes  have  no  such  tendency  unless  the  mines 
themselves  initiate  some  sort  of  a  movement,  some  sort  of  a 
concentrated  effort  to  make  taxes  uniform. 

There  are  two  ways  the  states  accomplish  the  penalization  of 
mines :  They  raise  the  tax  rate  directly  against  the  mine.  They 
put  on  an  ad  valorem  tax  and  add  to  that  a  tonnage  tax.  Minne- 
sota has  distinctly  penalized  mines.  It  has  an  open  policy  of 
penalizing  mines.  In  the  first  place  it  has  an  amendment  to  the 
constitution  which  taxes  mines  to  50  per  cent  of  their  value, 
other  property  is  taxed  to  30  and  40  per  cent  of  its  value.  In 
addition,  it  has  an  occupation  tax  which  is  added  to  that. 
Another  way  to  accomplish  this  result  is  to  increase  the  value 
of  the  mines,  to  gradually  add  on  valuation,  increasing  it  by 
different  methods,  increasing  it  by  changing  the  factors  of  valu- 
ation until  the  mines  are  paying  a  greater  share  of  the  tax  in  that 
particular  state  than  in  other  states.  Now  these  conditions  have 
moved  the  Mining  Congress  to  invite  here  their  representatives 
to  discuss  this  question  and  it  is  a  most  serious  one  now.  It  is 
far  more  serious,  in  my  estimation,  than  the  federal  tax  is.  We 
are  going  to  discuss  this  and  see  if  it  is  possible  in  any  way  to 
arrive  at  some  sort  of  uniformity  in  state  taxation,  to  arrive  at 
some  principles  of  uniformity  and  to  initiate  some  movement 
toward  the  accomplishment  of  that  result  to  mold  out  the  unfair 
discriminatory  taxes  of  some  of  the  states  against  mines.  Mr. 
Kriegh  of  the  Tax  Division  of  the  American  Mining  Congress 
has  prepared  here  as  a  basis  of  this  discussion  a  summary  of 
the  state  taxation  and  revenue  systems  of  the  various  states.  I 
will  ask  him  to  explain  that  briefly.  This  summary  is  here  for 
distribution  among  you  gentlemen. 


NATIONAL  MINE  TAX  CONFERENCE  5 

MR.  McKINLEY  W.  KRIEGH:  Gentlemen,  I  have  very 
little  to  say  about  this  summary.  When  it  was  decided  to  make 
the  subject  of  state  taxation  of  mines  the  principal  topic  of  this 
conference,  it  was  thought  necessary  to  have  something  here 
that  would  be  a  convenient  reference,  and  work  was  immediately 
begun  on  this  summary.  It  is  practically  complete  based  on  the 
existing  laws  of  1919.  Wherever  current  reports  were  available 
the  laws  were  brought  up  to  date.  There  may  have  been  some 
inaccuracies  which  crept  in,  but  I  think  in  the  main  you  will  find 
it  accurate.  The  time  was  insufficient  to  make  an  analysis  of 
this  summary  which  could  be  read  at  a  glance  and  so  you  have 
it  as  it  is  here,  and  as  the  various  state  delegates  take  up  the 
subject  about  the  laws  of  their  particular  states,  you  will  have 
convenient  reference  to  a  skeleton  of  the  laws  of  that  state. 
There  are  two  or  three  tables  at  the  end  of  the  summary  which 
you  will  find  somewhat  interesting  with  reference  to  the  per 
cent  of  increase  of  taxes  during  the  past  few  years.  There  is 
one  table  there  showing  total  revenue  receipts  by  states.  Reve- 
nues for  counties  and  municipalities  were  not  available  so  that 
we  have  only  the  per  cent  of  increase  in  the  state  revenue  receipts 
from  taxes. 

CHAIRMAN  ARMITAGE:  Gentlemen,  there  is  a  very  active 
body  which  has  been  working  for  a  great  many  years  on  the  sub- 
ject of  uniform  state  laws.  This  body  is  known  as  the  National 
Conference  of  Commissioners  on  Uniform  State  Laws.  It  is 
an  official  body  in  the  sense  that  it  represents  delegates  appointed 
by  law  by  the  various  states  of  the  union  for  the  very  purpose 
of  devising  and  procuring  the  enactment  of  uniform  state  laws. 
That  body  has  been  eminently  successful.  We  have  with  us 
today  the  Chairman  of  the  Executive  Committee  of  that  body, 
General  MacChesney. 

General  MacChesney  is  a  member  of  the  Chicago  Bar  and  for 
a  great  many  years  was  President  of  the  Illinois  Bar  Association. 
He  has  been  most  active  in  the  work  of  that  Association,  inter- 
ested in  the  needs  and  the  interests  of  it.  Part  of  the  work  of 
that  Association  has  been  an  endeavor  to  obtain  uniform  taxation 
laws.  We  have  invited  Mr.  MacChesney  to  explain  the  work 
of  that  Association,  its  nature,  its  ideals  and  purposes  and 
objects  and  its  successes.  He  has  kindly  consented  and  I  take 
great  pleasure  in  calling  upon  Mr.  MacChesney  and  introducing 
him  to  you. 

GENERAL  NATHAN  WILLIAM  MacCHESNEY:  Mr. 
Chairman  and  Gentlemen  of  the  Tax  Conference:  When  the 
subject  of  uniformity  was  selected  for  discussion  here,  it  seemed 
desirable  to  the  committee,  I  was  informed,  that  you  should  be 
advised  as  to  just  what  efforts  had  been  made  in  the  direction 
of  uniformity  of  legislation  in  this  country  in  order  to  appraise 
properly  the  difficulties  which  you  would  have  to  face  and  the 


6  PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

probabilities  of  success  you  will  achieve  in  the  field  of  uniform 
taxation. 

The  National  Conference  of  Commissioners  on  Uniform  State 
Laws  is,  as  has  been  said,  an  official  body.  It  held  its  thirty- 
first  annual  conference  last  year  at  Cincinnati  for  a  week  preced- 
ing that  of  the  American  Bar  Association,  and  has  to  its  credit 
the  passage  of  something  like  four  hundred  legislative  acts  in 
the  field  of  uniform  state  legislation.  It  was  first  called  together 
upon  the  suggestion  of  Governor  Hill  of  New  York  about  1890 
to  see  whether  or  not,  in  view  of  the  handicap  put  upon  com- 
mercial enterprises  by  lack  of  uniformity,  something  couldn't  be 
done.  Following  that  it  has  met  every  year  and  it  was  created 
by  statute  in  the  various  states,  its  representatives  being 
appointed  by  the  governors  under  legislative  authority  and  meet- 
ing in  annual  conference.  In  most  of  the  states  these  commis- 
sioners or  delegates  are  organized  into  a  state  commission  as 
they  are  in  this  state  for  the  purpose  of  promoting  uniformity 
within  the  state  itself. 

The  National  Conference  of  Commissioners  on  Uniform  State 
Laws  started  out  largely  from  a  commercial  point  of  view  and 
one  of  the  first  topics  it  took  up  was  that  of  negotiable  instru- 
ments. That  negotiable  instrument  act  which  was  drafted  by 
the  conference  has  been  adopted  by  51  jurisdictions  of  the  United 
States  in  various  states,  territories,  and  the  District  of  Columbia. 
A  number  of  other  acts  have  been  almost  as  widely  adopted. 
Following  the  adoption  of  certain  commercial  acts  the  conference 
went  into  the  field  of  the  so-called  social  or  family  acts  Hke 
marriage  and  divorce,  child  labor,  and  so  on.  It  found  that  while 
great  encouragement  was  given  to  its  commercial  acts  that  it 
was  somewhat  difficult  to  get  as  widespread  interest  in  the  field 
of  social  acts.  About  1908  the  conference  approached  certain 
of  its  acts  from  a  new  angle,  notably  the  Workmen's  Compensa- 
tion Act  and  one  upon  occupational  diseases  as  a  result  of  a 
suggestion  from  the  then  Governor  of  Massachusetts  who,  in 
an  official  communication,  asked  that  the  conference  take  up  the 
questions  of  workmen's  compensation,  pointing  out  that  a  state 
like  Massachusetts,  which  had  a  workmen's  compensation  act 
which  placed  a  burden  on  the  various  employers  of  the  state, 
was  under  an  economic  handicap  as  compared  with  states  that 
had  no  such  law.  Therefore,  it  was  to  the  interest  of  the  business 
of  those  states  which  desired  to  maintain  high  standards  that 
the  acts  on  that  subject  should  be  uniform.  For  the  first  time 
in  the  history  of  the  conference  these  so-called  social  acts  were 
approved  from  a  purely  business  point  of  view.  It  seems  to  me 
that  is  a  very  proper  point  of  view  from  which  they  can  be 
approached. 

Your  Chairman  has  said  that  the  matter  of  land  taxation  is 
purely  a  local  matter.  I  would  be  a  little  inclined  to  challenge 
that,  though  that  is  substantially  true.     Land  taxation  is  much 


NATIONAL  MINE  TAX  CONFERENCE  7 

more  of  a  local  matter  than  the  taxation  of  movables  of  any  kind, 
but,  nevertheless,  it  is  true  that  the  tax  upon  plant  investments 
do  have  something  to  do  v^ith  manufacturing  companies  in  close 
competition  and  it  becomes  of  interest  to  the  manufacturers  that 
their  plant  equipment  should  not  be  taxed  on  an  excessive  basis. 
As  has  been  pointed  out  here  in  the  question  of  mine  taxation, 
it  is  still  more  important  that  you  should  have  some  uniformity 
of  taxation  throughout  the  country.  Perhaps  before  I  discuss 
in  detail  how  I  think  the  National  Conference  might  be  of  service 
to  you  gentlemen  in  the  field  of  uniformity,  it  might  be  well  to 
tell  you,  briefly,  of  the  methods  of  work  of  the  Conference  of 
Commissioners  on  uniform  state  laws. 

This  conference  meets  once  a  year  but  it  has  certain  standing 
and  special  committees  which  are  functioning  during  the  year. 
It  has  a  committee  called  the  Committee  on  Scope  and  Program, 
which  in  a  general  way  determines  the  plan  upon  which  the  con- 
ference shall  act.  That  is  an  elected  committee  representing  the 
geography  of  the  United  States  pretty  well.  It  also  determines 
what  subjects  come  within  the  proper  scope  of  the  conference 
itself  in  view  of  the  crowded  program  that  is  always  presented 
to  it.  That  committee  reports  to  the  conference  and  if,  in  its 
judgment,  a  particular  subject  suggested  is  a  proper  one  for  the 
conference  to  take  up,  it  is  the  custom  to  authorize  a  special 
committee  on  that  subject.  That  committee,  as  has  been  the 
practice,  obtains  an  expert  draftsman  to  draft  a  law  intended  for 
consideration  and  in  the  drafting  of  that  law  there  are  hearings 
held  in  some  convenient  point;  for  instance,  on  the  commercial 
acts  and  bills  of  lading  act,  the  railroads,  the  shipper  and  the 
warehouse  men,  and  everybody  were  interested.  In  the  negoti- 
able instruments  act,  they  had  the  bankers  and  everybody  inter- 
ested in  that  subject. 

An  act  is  then  drafted  and  discussed,  is  reported  back  to  the 
conference  as  the  first  draft  of  an  act.  Under  the  rules  of  the 
conference  it  must  be  discussed  section  by  section  before  it  can 
be  given  final  consideration  and  must  go  over  one  year  when  it 
is  sent  out  to  all  the  interested  bodies  throughout  the  United 
States  for  specific  criticism.  If  it  comes  back  in  the  form  of  a 
tentative  draft  it  may  then  be  adopted.  If  it  is  adopted  it  is 
recommended  to.  the  states  for  adoption  when  introduced  by  the 
legislators  of  different  states. 

You  take  Illinois  for  instance,  in  our  legislature  we  have  a 
committee  on  uniform  state  laws  in  the  Senate  and  in  the  House. 
In  the  last  session  of  the  legislature  if  an  act  was  a  uniform  act 
instead  of  going  to  a  committee  on  taxation  or  a  committee  on 
what  not,  it  was  referred  directly  to  that  committee  on  uniform 
state  laws.  In  other  words,  the  whole  effort  such  as  is  put  into 
this  movement  by  the  National  Conference  of  Commissioners 
on  Uniform  State  Laws  is  largely  dissipated  if,  when  the  act 


8         PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

reaches  the  legislatures,  each  legislature  is  to  exercise  the  pre- 
rogative of  amending  the  law  to  make  it  what  they  deem  a  better 
law.  So  instead  of  referring  such  act  to  the  committee  on  the 
subject  matter  of  the  act,  it  is  referred  to  a  committee  on  uniform 
acts  and  will  be  considered  from  the  point  of  view  of  desirability 
of  uniformity  and,  if  the  committee  decides  to  recommend  it, 
it  will  be  recommended  as  a  uniform  act  which  does  away  with 
the  constant  meddling  with  these  acts. 

It  has  been  said  that  this  whole  movement  for  uniformity  of 
legislation  is  not  only  a  difficult  one  but  a  futile  one  because  of 
the  danger  constantly  of  having  uniformity  interpreted  out  of 
them  by  decisions  of  courts  and  that  is  a  very  real  danger.  Dur- 
ing the  last  year  there  were  810  decisions  upon  the  subject 
matter  covered  by  the  uniform  acts,  in  the  courts  of  last  resort 
in  the  United  States.  Of  these,  316  of  the  reported  decisions 
were  based  upon  and  decided  in  accordance  with  the  rule  of  the 
uniform  act  showing  that  the  courts  are  at  least  beginning  to 
not  merely  interpret  these  acts  which  was  the  course  they  pur- 
sued in  the  first  few  years  of  the  work  in  the  light  of  their 
previous  law  on  the  subject,  but  are  taking  into  consideration 
the  fact  that  these  acts  were  intended  to  make  the  law 
uniform  and,  therefore,  they  will  render  their  decisions  in  the 
light  of  uniform  acts  in  effect  in  the  various  states  and  not  in 
the  light  of  their  prior  decisions  on  the  same  subject  before 
such  acts  were  passed.  In  doing  that,  they  take  into  con- 
sideration not  so  much  their  own  prior  decisions  but  decisions 
of  courts  in  other  states  where  the  same  provisions  of  the  uni- 
form act  have  been  interpreted  rather  than  the  decision  of  their 
own  court.  It  would  be  quite  interesting  to  some  of  us  perhaps 
if  the  time  permitted  to  discuss  in  the  light  of  that  principle  the 
acts  of  some  of  the  courts,  but  on  the  whole  the  most  important 
commercial  states  of  the  union  are  pursuing  the  policy  of  endeav- 
oring to  keep  the  interpretation  of  the  acts  as  well  as  the  text 
uniform. 

'I  have  discussed  somewhat  the  scope  and  organization  and 
methods  of  the  conference  and  the  extent  to  which  its  acts  have 
been  passed  and  interpreted.  It  might  perhaps  be  interesting 
to  run  over  a  few  of  the  principal  acts  and  show  how  many 
states  have  adopted  them.  For  instance,  the  negotiable  instru- 
ments act  has  been  adopted  in  51  jurisdictions  which  was  the 
most  successful  one ;  the  sales  act  was  adopted  in  23  states ;  the 
warehouse  receipts  act  in  45  states;  bills  of  lading  acts  in  23 
states ;  desertion  and  non-support  act  in  10  states,  and  there  are 
a  large  number  of  other  acts  in  various  states  ranging  from  2 
up  to  16  or  17.  On  the  whole,  the  states  which  have  been  most 
prompt  in  the  adoption  of  the  acts  have  been  eastern  states  like 
Massachusetts,  Pennsylvania  and  New  York,  although  Illinois 
until  this  last  session  of  the  legislature  ranked  among  the  first 


NATIONAL  MINE  TAX  CONFERENCE  9 

group  of  those  having  the  largest  number  of  uniform  acts  in 
effect.  Very  few,  however,  have  paid  the  compliment  to  the 
National  Commission  of  Uniform  State  Laws  that  was  paid  by 
the  legislature  of  Alaska  which  took  8  of  our  acts  and  passed 
them  without  a  single  change,  leaving  even  the  final  bracket  in 
place  which  said  "this  law  will  become  effective  on  blank  day 
of  blank."  I  plead  for  no  such  uniformity  but  only  for  that 
reasonable  degree  of  uniformity  which  will  keep  tfie  factors 
effectively  working  together. 

This  whole  question  of  uniformity  is  spreading  and  becoming 
more  and  more  interesting  as  the  scope  of  it  is  widened  and  it 
is  realized  it  has  a  positive  economic  aspect  which  those  of  us 
who  have  been  interested  in  it  as  a  philosophy  and  social  prog- 
ress hope  it  will  bring  to  our  forces  a  large  number  of  people 
who  will  be  interested  in  widening  the  scope  of  the  work.  One 
very  interesting  recent  addition  was  the  discussion  on  inter-state 
compacts  by  Dean  Wigmore  of  Northwestern  University. 

The  constitution  of  the  United  States  provides  that  the  states 
shall  not  enter  into  compacts  between  themselves  without  the 
consent  of  Congress.  That  consent  has  been  given  in  certain 
instances;  for  example,  bills  passed  permitting  Michigan, 
Indiana,  Illinois  and  Wisconsin  to  enter  into  compact  with 
reference  to  criminal  jurisdiction  upon  Lake  Michigan,  and  there 
have  been  a  number  of  other  instances,  including  one  on  the 
development  of  New  York  harbor  between  New  York  and  New 
Jersey.  The  question  has  arisen  in  commercial  conferences 
interesting  the  oil  interests  of  South  America  and 'Mexico  with 
the  particular  subject  dealt  with  as  at  home  within  the  jurisdic- 
tion of  the  states.  Where  there  is  to  be  general  uniformity  of 
treatment,  it  must  be  done  by  national  agreement.  Mr.  Wigmore 
has  urged  that  this  question  of  interstate  compact  be  broadened 
so  that  by  consent  of  Congress,  the  states  will  be  permitted  to 
be  represented  in  such  commercial  conventions  with  foreign 
states  in  order  that  the  whole  subject  may  be  worked  out  with 
some  degree  of  uniformity. 

Why  hasn't  the  conference  contributed  something  to  the  field 
of  taxation  which,  of  course,  is  one  of  the  most  vital  fields?  Well, 
as  I  have  said,  the  conference  found  that  its  easiest  field  was  in 
the  field  of  commercial  law,  commercial  papers,  negotiable 
instruments,  bills  of  lading,  warehouse  receipts,  etc.,  and  that 
it  found  a  disinclination  even  in  the  field  of  family  law  to  pass 
its  uniform  acts.  That  wasn't  so  much  because  of  lack  of  interest 
in  those  subjects  but  because  it  was  pretty  hard  to  persuade 
people  with  reference  to  divorce  in  South  Carolina  whether  it 
was  the  same  in  Illinois  and  tell  them  what  the  law  was.  It  is 
just  as  Judge  Pike  told  me  in  Nevada  when  I  sat  with  him  and 
heard  some  of  the  divorce  cases.  He  said  the  law  of  Nevada 
was  intended  to  wash  the  dirty  linen  of  Nevada  and  not  for 


10        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

other  states.     He  wished  people  would  stay  away  and  let  them 
alone  in  Nevada. 

When  it  came  to  the  field  of  real  estate  law  it  was  found 
almost  impossible  to  get  any  progress  at  all  in  the  line  of  uniform 
legislation  with  regard  to  wills,  real  estate,  or  anything  involv- 
ing titles  to  property,  etc.,  because  people  regarded  it  as  their 
own  local  concern. 

That  has  been  true  also  in  the  field  of  taxation.  The  confer- 
ence retained  for  a  number  of  years  a  committee  on  taxation 
and  they  were  presented  with  certain  preliminary  reports  and 
it  never  could  get  anywhere  when  it  came  to  working  out  some 
uniform  system.  Each  state  regarded  it  as  its  own  concern  and 
went  on  the  principle  that  the  right  to  tax  was  the  right  to  raise 
the  money  where  it  could  until  the  squeal  became  so  loud  they 
had  to  desist.  On  the  other  hand,  I  think  there  is  a  growing 
feeling  that  a  state  can  not  afford  to  penalize  its  own  industries 
in  such  a  way  as  to  drive  them  all  away  from  the  confines  of  the 
state.  If  approached  from  that  point  of  view  some  progress 
might  be  made. 

A  very  much  better  case  can  be  made  in  connection  with 
mining  taxation,  for  instance,  as  has  been  stated  here.  If  this 
conference  is  interested  in  having  the  co-operation  of  this  body 
that  has  been  successfully  operating  in  other  fields,  the  way  to 
get  it  would  be  to  appoint  a  committee  here  to  prepare  some 
sort  of  draft,  if  you  please,  with  a  brief  as  to  why  you  think 
the  mme  taxation  is  a  proper  subject  for  uniformity.  Then 
present  that  to  a  meeting  of  the  Scope  and  Program  Committee 
which  will  meet  in  the  mid-winter  at  Tampa,  Florida ;  it  is  either 
Januar}^  or  February,  I  believe.  Then  if  you  can  persuade  the 
committee  on  Scope  and  Program  that  some  action  should  be 
had,  real  progress  could  be  made  at  the  next  annual  conference. 

It  seems  to  me  that  if  the  conference  makes  up  its  mind  that 
state  uniformity  is  desirable  in  this  field  as  it  would  seem  to  be, 
that  the  National  Conference  of  Commissioners  could  be  of  very 
real  service  in  placing  at  your  disposal,  upon  proper  presentation 
of  the  subject  to  its  organization,  its  methods  of  work  would 
give  it  the  sort  of  backing  which  it  is  in  position  to  give  because 
of  its  long  history  in  this  field.  It  would  have  to  depend  'on  you 
gentlemen  to  furnish  the  particular  information  with  reference 
to  the  Industry  and  with  that  at  hand  I  believe  that  it  could  be 
of  very  great  help  in  the  formation  of  an  act  which  would  stand 
some  chance  of  passing  in  the  various  states,  particularly  if  it 
had  your  backing  when  introduced  into  the  legislatures. 

This  whole  question  of  uniformity  of  state  taxation  is  much 
more  difficult  than  the  question  of  federal  taxation.  That  is 
bad  enough  for  those  who  have  to  come  in  contact  with  it  but 
at  least  you  can  focus  pressure  upon  Congress,  when  some  grave 
injustice  as  in  the  taxation  of  capital  develops,  with  some  hope 


NATIONAL  MINE  TAX  CONFERENCE  11 

of  bringing  relief.  It  is  such  slow  work  to  do  anything  in  the 
various  state  legislatures  where  each  legislature  is  enforced  by 
an  act  which  has  not  been  repealed  in  some  other  state.  If  you 
gentlemen  can  get  a  uniform  act  prepared  by  the  National  Con- 
ference, with  its  recommendation  before  the  legislatures,  you 
will  at  least  avoid  that  which  has  defeated  so  much  business 
legislation  in  the  past,  namely,  the  charge  that  the  proposed  tax 
change  is  in  the  interest  of  some  special  interest  or  industry  at 
the  expense  of  the  people.  The  Conference  at  least  has  the  his- 
tory and  reputation  of  only  recommending  to  the  legislatures 
of  the  country  those  acts  which  in  its  judgment  are  for  the 
benefit  of  the  entire  country  without  regard  to  any  particular  or 
special  interest.  I  can  assure  you  that  if  there  is  anything  I 
can  do  personally  as  an  officer  of  that  conference  in  assisting 
in  ironing  out  the  inequality  of  taxation  in  the  field  of  mining 
or  anywhere  else,  I  shall  be  glad  to  assist.     (Applause.) 

CHAIRMAN  ARMITAGE:  Gentlemen,  I  think  I  express, 
the  sentiment  of  this  meeting  in  thanking  General  MacChesney 
for  his  interesting  talk  and  his  ofifer  of  assistance.  I  can  assure 
him  that  if  the  conference  here  adopts  some  plan  or  program 
that  we  shall  certainly  consult  his  organization  and  call  upon 
them  for  assistance,  if  not  actually  to  advocate  the  laws  that  we 
may  decide  upon. 

Mr.  Albert  Fay,  who  is  the  Chief  of  the  Sub-division  of  Nat- 
ural Resources  of  the  Income  Tax  Unit  of  the  United  States 
Bureau  of  Internal  Revenue,  was  to  be  here  and  deliver  an 
address  on  the  relations  of  the  Sub-division  of  Natural  Resources 
to  the  mining  industry.  Unfortunately,  Mr.  Fay's  subdivision 
was  engaged  in  a  reorganization  and  moving  from  one  building 
in  Washington  to  another.  He  was  doubtful  at  the  last  moment 
if  he  could  attend  and  I  am  sorry  to  say  he  has  not  appeared  as 
yet.    I  am  afraid  he  will  not  be  able  to  attend  the  meeting. 

We  have  with  us  a  gentleman  who  has  been  a  Solicitor  of  the 
Internal  Revenue  and  who  is  familiar  with  the  needs  and 
requirements  of  the  mining  industries  and  who  has  given  par- 
ticular attention  to  the  subject  of  tax,  both  from  Governmental 
and  State  standpoints — that  man  is  Major  Robert  Miller.  I 
will  call  upon  him  to  address  the  conference.     (Applause.) 

MAJOR  ROBERT  N.  MILLER:  Gentlemen,  I  enjoyed  very 
much  and  profited  very  much  from  what  I  have  just  heard  and 
I  expect  to  learn  a  great  deal  more  while  I  am  here ;  in  fact,  to 
get  more  than  I  am  able  by  any  possibility  to  give.  What  I 
have  to  say  is  primarily  on  the  subject  of  federal  taxation  and 
it  does  not  fit  in,  I  am  sorry  to  say,  exactly  with  what  Mr. 
MacChesney  has  said. 

Before  I  begin,  I  want  to  say  there  is  a  very  firm  conviction 
of  mine  that  the  movement  toward  uniform  state  taxation  is  a 


12        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

very  important  one.  All  of  us  have  seen  how  pitifully  foreign 
states  are  handicapped  by  the  difficulty  people  have  in  moving 
back  and  forth,  the  duties  and  the  changes  of  language  and 
everything  like  that.  I  have  realized  what  a  vast  blessing  it  is 
for  us  in  this  country  that  we  can  move  around  and  forget  when 
we  cross  the  state  line.  What  a  splendid  thing  that  is  for  our 
country.  We  have  been  handicapped  by  something  that  was 
nearly  as  bad  as  some  of  the  foreign  difficulties,  and  that  is  this 
utter  diversity  of  laws  and  notions  about  all  kinds  of  things. 
This  is  a  step  in  the  direction  of  wiping  out  that  handicap.  Laws 
can  be  uniform  and  still  they  can  be  bad.  They  can  be  uniformly 
bad  as  well  as  uniformly  good,  yet  I  am  very  firmly  persuaded 
that  with  uniformity  goes  education  of  the  fundamentals  that 
are  involved  in  any  kind  of  tax  laws.  With  education  goes  a 
movement  on  a  sound  basis  of  theory  of  the  law.  If  this  move- 
ment is  started  now  and  it  takes  15  years  to  fruit  in  a  reasonable 
number  of  uniform  state  tax  laws  on  mining,  it  still  is  worth 
while  to  start  now.  The  good  results  of  starting  now  will  begin 
to  be  evident  right  off  because  primarily  the  trouble  is  that  the 
state  laws  are  so  diversified  and  the  reason  why  they  are  so  often 
poor  in  theory  is  a  lack  of  understanding  of  the  fundamentals 
and  good  sense  of  the  thing.  The  more  the  matter  is  talked  about, 
the  more  people  meet  together,  the  more  they  will  get  at  that 
fundamental  good  sense  of  the  proposition. 

In  taxation  we  have  got  to  face  the  fact  that  uniformity  is 
harder  because  taxes  are  like  other  laws,  they  are  necessary 
evils  to  a  certain  extent.  It  is  a  pity  we  have  to  have  anything 
to  govern  us.  Fundamentally,  it  has  a  beneficial  influence  but 
a  tax  law  just  to  raise  money  in  that  sense  is  a  matter  of  neces- 
sity. In  most  cases  it  has  to  be  met  with  materials  that  are  at 
hand.  This  is  a  hard  problem  but  the  fact  that  a  problem  is  hard 
never  yet  stopped  the  right  kind  of  people  from  going  at  it  and 
working  it  out. 

One  other  point  about  this  state  proposition  which  I  think 
we  shall  see  more  and  more,  is  the  growth  of  the  idea  that  some- 
how or  other  a  man  doesn't  have  a  right  by  natural  resources 
They  think  if  he  has  paid  a  million  for  natural  resources  he  has 
bought  something  people  have  no  right  to  trade  in.  That  is 
wrong.  It  is  something  that  has  got  to  be  gotten  out  of  people's 
heads.  There  is  one  other  thing  that  has  to  be  fought.  There 
is  a  natural  restraint  on  the  taxing  power  even  when  it  is  directed 
against  a  small  class.  If  the  people  of  the  taxing  sovereignty 
need  the  product,  after  they  have  gone  a  certain  way  in  taxing 
a  small  group,  they  begin  to  wake  up  and  find  the  supply  of 
what  they  need  is  falling  off.  In  the  case  of  natural  resources, 
there  is  lacking  the  control  of  that  influence  which  usually  evens 
things  up. 


NATIONAL  MINE  TAX  CONFERENCE  13 

With  Reference  to  the  Administration  of  Federal  Income  Taxes 

When  the  federal  tax  administration  takes  the  position  that 
more  income  or  excess  profits  tax  is  due  from  a  taxpayer  than 
has  been  paid  for  any  particular  year,  there  are  three  possibili- 
ties— the  Government  may  be  right,  the  taxpayer  may  be  right, 
or  neither  may  be  right.  The  Government  has  a  valuable  back- 
ground gained  in  the  study  of  other  cases,  but  is  sometimes  han- 
dicapped by  lack  of  detailed  knowledge  as  to  the  particular  case 
and  other  disabilities  due  to  the  size  of  its  organization.  The 
taxpayer,  on  the  other  hand,  has  unique  knowledge  of  his  own 
business,  but  often  lacks  full  understanding  of  the  legal  effect 
of  the  facts  when  considered  in  the  light  of  the  conventional 
rules  which  experience  has  developed  in  the  Bureau.  He  often 
fails  to  reaHze  that  some  of  the  facts  are  material  on  the  tax 
questions.  No  satisfactory  solution  can  be  reached  until  some 
combination  of  experience  can  be  made  by  which  each  group 
will  get  the  knowledge  which  it  needs,  and  furnish  the  knowl- 
edge in  which  it  is  proficient.  It  is  unfortunate  that  the  law 
should  be  so  complicated  to  administer,  but  it  is  nevertheless 
true.  It  is  a  fact  that  any  heavy  income  tax  law  is  complicated, 
for  the  accurate  determination  of  net  income  is  inherently  hard. 
We  have  not  only  an  income  tax  law,  but  also  a  law  involving 
invested  capital — another  source  of  complication.  There  appears 
to  be  no  chance  of  getting  rid  of  the  excess  profits  complications 
in  the  returns  to  be  filed  next  Spring. 

Since  the  decision  of  these  questions  in  any  tax  case  lies  pri- 
marily with  the  Government,  it  is  the  taxpayer  who  must  take 
the  initiative,  and  bring  the  Government  to  his  way  of  thinking 
if  he  can.  That  this  burden  falls  on  the  taxpayer  rather  than 
the  Government  is  unfortunate,  but  here,  too,  we  must  deal  with 
this  as  a  fact.  It  must  be  admitted,  also,  that  in  taxing  systems, 
both  present  and  past,  it  has  practically  always  been  the  same. 

It  is  perhaps  profitable  to  consider  a  few  of  the  principal  diffi- 
culties which  harass  the  Government  in  the  tremendous  task  of 
auditing  millions  of  returns.  The  taxpayer  has  always  known 
it  was  hard  for  the  taxpayer,  now  he  is  beginning  to  realize  that 
the  Commissioner  of  Internal  Revenue  is  in  no  easier  position. 
The  best  reason  for  studying  the  problems  of  the  Department  is 
that  such  study  is  helpful  to  the  taxpayer  in  presenting  his  case. 
To  understand  the  difficulties  which  must  be  removed  before  a 
judicial  body  can  be  convinced,  is  obviously  the  first  step  toward 
actually  and  legitimately  convincing. 

1.  Probably  the  greatest  difficulty  which  confronts  the  Com- 
missioner is  the  fact  that  he  is  not  free  to  pay  the  salaries  appro- 
priate to  the  responsible  and  difficult  work  his  technical  assist- 
ants and  deputies  must  do.  All  of  the  Secretaries  of  the  Treasury 
and  Commissioners  of  Internal  Revenue  who  have  held  office 
since  heavy  taxes  made  this  a  vital  issue,  including  the  present 


14        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

officers,  have  fought  for  better  salaries  for  the  men  who  must 
supervise  this  difficult  technical  work.  Some  success  has  been 
met  with,  but  the  taxpayer  is  still  suffering  from  this  difficulty. 
Inexperienced  men  are  of  course  slow,  but  this  is  not  the  mpst 
serious  thing;  inexperienced  men,  who  have  not  a  clear  back- 
ground, based  on  the  examination  of  many  cases,  nearly  always 
lack  the  courage  to  decide  for  the  taxpayer  when  he  ought  to 
have  the  decision.  The  seasoned  man  has  the  courage  of  well 
grounded  convictions.  The  men  of  this  type  who  are  still  with 
the  Bureau  are  fully  able  to  guard  it  from  imposition,  but  also 
able  to  yield  when  the  taxpayer  is  right.  They  cannot  be  spared, 
and  they  are  the  very  ones  who  are  most  in  demand  for  outside 
work.  Unless  these  key  men  are  paid  Avhat  they  are  worth, 
things  are  likely  to  grow  worse  in  the  Bureau  instead  of  better. 
2.  The  next  difficulty  in  point  of  importance  is  the  complica- 
tion of  the  law.  So  long  as  the  law  is  complicated,  its  adminis- 
tration will  be  and  the  impending  legislation,  except  as  to  the 
taxable  year  1922  and  thereafter,  offers  no  substantial  simplifica- 
tion. Taxpayers  do  not  need  to  be  reminded  that  the  law  is 
complicated,  of  course,  but  the  undue  stress  which  is  often  laid 
by  them  on  some  special  phase  of  the  law  seems  to  indicate  that 
many  do  not  clearly  see  how  wide  a  field  must  be  covered  before 
one  can  really  say  that  a  tax  is  correct,  and  if  not,  where  the 
trouble  lies.  Human  nature  acts  much  as  it  does  in  relation 
to  medical  treatment.  Just  as  patients  who  hear  that  someone 
has  been  benefited  by  a  certain  treatment,  want  to  have  the 
same  treatment  without  reference  to  whether  the  disease  is  the 
same,  so  some  taxpayers,  because  a  depletion  adjustment  or  a 
change  of  depreciation  basis  has  helped  someone  else,  assume 
that  this  is  the  point  as  to  which  their  own  returns  need  atten- 
tion. The  fact  is  that  no  one  can  tell  without  fundamental  study 
what,  if  anything,  needs  attention  in  a  particular  case,  and  that 
this  complexity  is  the  biggest  practical  difficulty  in  administra- 
tion. 

The  great  number  of  questions  which  have  to  be  settled  before 
the  Government  or  a  taxpayer  can  tell  whether  a  tax  is  right  or 
wrong  might  be  classified  roughly  into  four  groups : 

(a)  General  questions  relating  to  determination  of  net  in- 
come for  the  taxable  year. 

(b)  General  questions  relating  to  determination  of  invested 
capital  for  the  taxable  year. 

(c)  Valuation  questions. 

(d)  Application  of  relief  provisions. 

The  first — as  to  income  determination — embraces  a  great  num- 
ber of  widely  diverse  problems  such  as  what  must  be  included  in 
gross  income,  and  in  what  year;  what  constitutes  realization; 
deduction  problems,  including  those  relative  to  depreciation; 
depletion,  losses,  amortization  and  the  like. 


NATIONAL  MINE  TAX  CONFERENCE  15 

The  second  class-invested  capital  question — involves  such 
topics  as  reconstruction  of  items  which  could  have  been  charged 
to  capital  account,  but  have  been  expensed,  the  establishment 
of  values  paid  in  for  stock,  questions  as  to  diminution  of  invested 
capital  through  sustained  depreciation  and  depletion,  the  subject 
of  inadmissibles,  etc. 

The  third  class,  that  relative  to  valuation,  is  closely  related  to 
the  first  two,  since  the  valuations  are  for  the  purpose  of  affecting 
either  deductions  used  in  determining  not  income  or  for  the 
purpose  of  sustaining  claims  for  invested  capital,  when  property 
vv-as  paid  in  for  stock.  Valuations  are  an  important  feature  for 
taxpayers  in  general,  but  are  especially  involved  in  the  tax  mat- 
ters of  wasting  industries,  because  in  addition  to  the  other  ques- 
tions depletion  deductions  appear  as  an  important  element. 
Everyone  who  has  dealt  with  valuations — whether  for  state  or 
federal  purposes,  or  rate-making  or  what  not — will  readily  agree 
that  few  things  are  harder  or  less  certain.  In  the  case  of  natural 
resources,  it  is  surprising  that  although  it  is  seven  or  more  years 
since  depletion  began  to  be  a  factor  in  federal  taxation,  and 
although  it  is  an  important  and  annually  recurring  factor,  the 
problem  as  to  what  bases  are  best  for  such  valuations  for  that, 
purpose  is  still  not  fully  worked  out.  In  some  of  the  lines,  such 
as  coal,  metals,  oil  and  gas,  a  great  deal  of  constructive  work 
has  been  done  and  is  still  going  forward,  but  in  the  field  of 
miscellaneous  non-metals,  such  as,  for  instance,  asphalt,  g}q3sum, 
mica,  asbestos,  feldspar,  graphite,  phosphate  rock,  potash,  sali", 
etc.,  the  greater  part  of  the  constructive  work  is  still  to  be  done. 
In  this,  difficult  field,  as  in  the  whole  taxation  field,  the  answer 
lies  not  primarily  in  what  some  one  authority  thinks  as  to  the 
value,  but  in  the  detailed  facts.  Accounts,  engineering  facts 
and  law  all  play  a  part  in  the  valuation  of  material  deposits, 
and  the  ideal  engineer's  report  on  a  valuation  is  one  that  not 
only  sets  for  the  conclusion  of  a  qualified  person,  but  presents 
such  facts  so  marshaled  that  if  no  conclusion  had  been  expressed, 
a  well  qualified  reader  following  the  report  through  will  be  led 
in  his  own  calculations  to  reach  the  conclusion  which  the  engi- 
neer had  reached.  The  ipse  dixit  counts  some,  but  the  reliable 
and  well  ordered  facts,  which  in  common  sense  afifect  the  value 
are  most  useful  of  all. 

As  you  gentlemen  are  well  aware,  the  Bureau  has  from  the 
first  recognized  the  importance  of  the  valuation  problems,  and 
has  not  only  established  valuation  divisions  for  natural  resources 
and  for  those  industries  entitled  to  amortization,  but  has  sub- 
divided these  divisions  so  as  to  employ  and  develop  experts  in 
each  field  of  valuation. 

The  relief  group,  referred  to  as  the  fourth  of  the  general  heads, 
includes  the  cases  in  which  the  Commissioner  has  power,  after 
the  correct  technical  calculation  of  the  excess  profits  tax,  to  re- 
duce it  to  a  figure  in  line  with  the  percentage  of  net  income 


16        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

which  more  normal  competitors  have  paid  out  in  excess  profits 
tax.  The  particular  abnormalities  on  which  such  relief  rests 
will  not  be  discussed  here.  As  bearing  on  the  complication  of 
the  law,  it  is  to  be  noted  that  many  of  these  abnormalities  relate 
to  facts  which  books  of  account  are  not  expected  to  indicate — 
which  must  be  obtained  by  observation  of  the  business  itself, 
and  careful  inquiry  as  to  its  conduct,  and  the  causes  of  its 
success. 

3.  In  addition  to  the  complication  of  the  law  itself,  a  very 
grave  difficulty  lies  in  the  problem  determining  the  facts  to 
which  the  law  is  to  be  applied  in  the  case  of  each  taxpayer.  It 
goes  without  saying  that  the  natural  inclination  of  a  busy  admin- 
istrative officer  is  to  apply  the  general  rule — especially  when  it 
reaches  the  conservative  result  of  increasing  the  tax  due  the 
Government.  It  is  natural  that  any  facts  which  bring  the  case 
under  one  of  the  rule's  exceptions  will  be  closely  scrutinized, 
and  to  be  accepted,  must  be  fully  substantiated.  The  determina- 
tion of  facts  is  difficult  enough  when  both  sides  have  equal  access 
to  the  facts  and  opportunity  to  study  them;  it  is  harder  still 
where,  as  in  the  tax  questions,  presentation  is  largely  ex  parte. 
The  Bureau  not  only  deals  with  the  average  taxpayer,  who  uses 
language  honestly,  and  means  what  he  says,  but  with  some  who 
are  not  so  frank,  and  who  deal  in  half  truth,  or  worse.  For  in- 
stance, the  taxpayer  must  remember  that  while  "approximately" 
is  a  respectable  word,  and  has  a  real  meaning  to  him,  it  is  a 
word  to  keep  away  from,  because  less  scrupulous  persons  have 
made  the  Bureau  auditor  regard  it  as  a  cloak  for  misleading 
statements.  This  is  trivial,  yet  it  illustrates  a  general  truth — 
how  careful  the  auditor  is  made  by  experience.  Generalities  he 
hears  every  day,  so  that  they  make  no  more  impression  on 
him  than  the  familiar  ticking  of  a  clock.  He  does  not  begin  to 
listen  until  clear  and  well  authenticated  facts,  given  in  circum- 
stantial detail,  begin  to  appear,  and  you  would  feel  the  same  way 
if  you  had  his  job.  When  you  come  to  think  about  it,  it  is  his 
duty  to  watch  the  Government's  side  of  the  case,  as  well  as  the 
taxpayer's.  Sometimes,  it  is  true,  he  grows  suspicious  of  every- 
body, and  acquires  a  state  of  mind  in  which  nothing  can  con- 
vince him.  Such  conduct  is  not  the  rule,  and  is  of  course  inde- 
fensible; the  only  treatment  when  it  is  met  with  is  to  go  higher. 

The  ordinary  taxpayer  has  somehow  inherited  the  idea  that 
things  in  Washington  go  by  influence.  This  may  be  true  in 
some  quarters  but  it  has  not  been  true  of  the  tax  administration 
since  it  has  become  so  vital  a  part  of  the  nation's  fundamental 
structure.  It  demands  and  receives  a  leadership  of  unusual 
quality.  This  was  true  under  democratic  rule,  and  is  true  now. 
No  governmental  agency  is  less  political  or  more  earnest.  It 
claims  the  attention  of  sober  and  thoughtful  men,  and  its  re- 
sponsibilities make  them  more  sober  and  thoughtful  still. 

It  is  not  easy  to  employ  thousands  of  men  in  a  work  which 


NATIONAL  MINE  TAX  CONFERENCE  17 

requires  un  unusual  degree  of  judgment  as  well  as  high  tech- 
nical accuracy,  but  since  the  tax  laws  first  became  complex 
the  men  responsible  for  administration  have  tried  their  best  to 
build  an  organization  which  will  develop  the  right  answer  for 
each  taxpayer. 

And  yet — as  these  gentlemen  freely  admit — no  amount  of 
faithful  endeavor  has  served  to  make  the  taxpayer's  lot  even 
bearable.  Entirely  aside  from  the  money  he  must  pay  in  taxes, 
endless  delays  and  readjustments  occur  which  are  soul-wearing 
to  him  and  unfortunate  for  the  Government.  The  point  is  that 
these  conditions  are  not  due  to  lack  of  effort  to  correct  them 
or  lack  of  effort  to  get  the  men  who  can  correct  them.  The 
Commissioner  must  enforce  the  law  Congress  enacts ;  Congress 
must  enact  the  kind  of  law  which  the  tremendous  demand  for 
tax  revenue  makes  imperative,  and  no  hope  of  really  simple 
administration  is  in  sight  until  the  amount  to  be  raised  in  taxes 
can  be  reduced.  But  it  is  important  for  taxpayers  to  bear  in 
mind,  I  think,  that  the  solution  of  these  difficult  problems  de- 
pends on  a  fuller  understanding  of  the  whole  problem  by  both 
parties,  and  that  the  Department  welcomes  and  always  has  wel- 
comed the  co-operation  of  taxpayers  in  getting  at  the  truth.  If 
you  say  that  you  have  met  a  revenue  agent  who  is  a  plain  tax- 
grabber,  or  some  other  official  who  seemed  to  think  that  the 
taxpayer  had  no  right  to  have  any  ideas  on  so  distinctly  federal 
a  science,  my  answer  is  that  you  ought  to  know  better  than  to 
accept  the  word  of  such  a  man  as  final.  It  is  indeed  a  shocking 
thing  that  it  takes  so  much  time  and  patience  and  so  many  trips 
to  Washington,  but  we  have  to  admit  that  since  the  dawn  of 
civilization  man  has  never  invented  a  single  satisfactory  method 
of  settling  any  kind  of  technical  controversies  involving  large 
issues  without  difficult,  hard  work  and  delay.  Patience  and  hard 
work  have  always  been  required,  and  if  there  is  a  royal  road,  no 
one  has  ever  found  it. 

4.  Another  difficulty  is  that  all  taxpayers  must  be  treated 
alike  in  principle,  and  that  the  principle  which  helps  one  tax- 
payer often  hurts  another.  If  a  point  of  principle  hitherto  adopted 
is  yielded  because  its  application  would  result  in  hardship  in 
a  particular  group  of  cases,  it  means  that  this  principle  is  wiped 
out  permanently.  It  is  either  sound  or  not  sound.  From  this 
it  is  clear  that  a  taxpayer's  contention  has  a  better  chance  of 
succeeding  if  it  can  be  reconciled  with  principles  to  which  the 
Bureau  has  been  committed,  because  while  established  principles 
must  be  overturned  when  necessary,  such  action  may  require 
a  reaudit  of  many  cases  closed  on  the  former  basis,  and  intro- 
duces an  element  of  uncertainty  which  is  sometimes  as  bad  in  its 
total  effect  as  adhering  to  the  old  rule  would  have  been. 

5.  There  is  another  factor  which  might  be  mentioned,  but 
which  as  a  practical  matter  is  not  as  important  as  some  people 
think.     It  is  a  fact  in  this  organization,  as  in  any  other  where 


18        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

many  employes  have  great  responsibilities,  that  moral  break- 
downs occur,  but  I  am  glad  to  say  that  the  importance  of  this 
is  often  exaggerated.  While  this  is  a  thing  which  must  be  and 
is  watched  for  and  guarded  against,  the  tax  administration  is 
one  of  the  cleanest  large  organizations  in  the  world.  Instances 
of  moral  failure,  when  they  occur,  are  startling  and  disquieting, 
but  they  are  very  exceptional.  The  Bureau  may  agree  with  the 
taxpayer,  or — more  commonl}^ — disagree  with  him,  but  it  is 
fundamentally  an  honest  place  and  the  disagreements  and  agree- 
ments are  honest.  The  men  naturally  resent  any  action  on  the 
part  of  a  taxpayer  which  indicates  an  impression  that  influence 
can  produce  a  result  which  facts  and  arguments  cannot. 

Taxpayers  who  must  help  the  Government  perform  its  diffi- 
cult and  important  function  would  do  well  to  observe  three  car- 
dinal rules — to  which  I  think  the  Commissioner  and  all  his  co- 
horts would  cheerfully  subscribe : 

1.  To  treat  the  representatives  of  the  tax  administration  as 
men  who  are  honestly  seeking  the  right  answer  to  a  hard  prob- 
lem. 

2.  To  avoid  assuming  that  any  government  tax  man  who  seems 
churlish  or  intolerant  is  typical  of  the  organization,  and  to  real- 
ize that  there  are  always  men  who  will  listen  with  courtesy  and 
sympathy  to  a  real  "case  clearly  stated,  no  matter  who  presents  it. 

3.  To  present  the  detailed  facts  and  the  law  of  the  case,  fun- 
damentally considered,  in  written  form  which  will  permanently 
justify  the  ruling  expected,  and,  if  possible,  on  a  ground  which 
does  not  require  the  upsetting  of  rules  adopted  in  other  cases. 

CHAIRMAN  ARMITAGE:  Major  Miller's  discussion  of  the 
subject  of  federal  taxation  was  of  special  interest,  particularly 
with  reference  to  the  administration  of  federal  taxation.  The 
same  problems  of  administration  of  taxation  systems  apply  in 
the  states.  The  same  difficulty  of  getting  proper  men,  of  keep- 
ing proper  men,  preserving  the  personnel  of  the  tax  bureau  and 
commission,  and  keeping  a  high  standard  exists  in  the  states. 
It  is  through  Major  Miller's  long  experience  with  those  particu- 
lar problems  in  Washington  that  his  discussion  of  these  things 
bear  on  the  subject  of  our  state  tax  problems.  That  is  one  of 
the  problems  that  we  will  have  to  face.  It  has  been  stated  that 
nine-tenths  of  the  tax  law's  success  depends  on  its  administra- 
tion.   There  is  a  great  deal  of  force  in  that  statement. 

Major  Miller  pointed  out  and  gave  us  a  new  thought  on  the 
subject  of  state  taxation,  particularly  as  applied  to  mines,  that 
is  in  the  case  of  mine  taxes  that  we  did  not  have  that  natural 
restraint  which  existed  where  the  people  of  the  locality  consumed 
the  product.  That  is  a  very  interesting  thought.  You  can  see 
plainly  that  where  the  product  is  consumed  by  the  people  and 
is  overtaxed,  people  of  the  locality  feel  the  effect  of  high  taxes. 
Where  the  product  is  consumed  nationwide  they  don't  feel  that 


NATIONAL  MINE  TAX  CONFERENCE  l9 

effect  and  we  don't  have  a  constraint.  That  is  one  of  the  things 
which  differentiates  and  separates  the  taxation  of  mines  from 
other  industries  of  the  state. 

I  think  we  can  approach  this  subject  of  state  taxation  best 
by  having  a  discussion  of  the  different  systems  of  the  different 
states  in  the  taxation  of  mines.  They  may  be  roughly  divided 
into  some  form  of  income  tax  and  some  form  of  ad  valorem  tax. 
In  some  states  we  have  the  net  production,  the  gross  production, 
or  a  combination  of  the  two  taxes  and  in  others  the  valuation  tax 
based  upon  a  valuation  of  the  mines.  One  of  the  states  has  made 
a  most  determined,  conscientious,  and  fair  effort  to  solve  this 
problem  of  tax.  New  Mexico  appointed  recently  a  commission 
to  discuss  the  question  of  taxes  and  report  to  the  government  of 
that  state. 

The  members  of  that  commission,  of  which  Mr.  Hagerman 
was  chairman  and  Professor  Haig  of  Columbia  was  special 
advisor,  had  many  hearings  and  issues.  In  November  of  last 
year,  a  report  which  is  a  very  interesting  one  and  a  very  care- 
fully prepared  and  carefully  thought  out  document  was  made. 
Part  of  that  report  deals  with  the  question  of  taxation  of  mines. 
It  is  a  most  interesting  chapter.  The  commission  seemed  to  be 
in  favor  of  the  ad  valorem  method.  One  of  their  suggestions 
is  a  very  interesting  one.  They  suggested  that  there  should  be 
a  suspension  fund  in  the  type  of  an  insurance  fund  which  should 
guarantee  in  a  sense  the  assessor's  valuation.  This  fund  was  to 
be  paid  in  to  the  state  and  as  the  assessor's  valuation  should  be 
collected  that  fund  should  be  used  to  pay  subsequent  taxes  if 
the  valuation  was  excessive.  Now  one  of  the  men  who  attended 
those  sessions  and  who  is  familiar  with  the  problems  that  they 
tackled  and  the  attempt  of  the  state  to  solve  those  problems,  is 
present  and  that  man  is  Judge  Stimson.  I  would  like  to  call 
upon  Judge  Stimson  to  give  us  his  experiences  with  reference 
to  tax  matters  and  methods  of  taxation  of  mines  in  the  state  of 
Colorado  with  which  he  is  familiar  also. 

JUDGE  E.  C.  STIMSON:  Mr.  Chairman  and  gentlemen, 
this  is  almost  embarrassing.  There  are  gentlemen  here  from 
New  Mexico  who  are  much  more  familiar  with  the  New  Mexico 
situation  than  I  could  possibly  be,  for  I  was  almost  an  interloper 
and  intruder.  I  was  present  at  the  meeting  of  the  mine  operators 
at  Silver  City,  when  the  matter  was  first  presented  for  their  con- 
sideration. I  was  present  afterwards  at  the  session  of  the 
commission  to  which  the  Chairman  has  referred,  at  Santa  Fe 
when  they  gave  the  mining  interests  a  part  of  one  day  for  a 
hearing.  Professor  Haig  was  there ;  he  asked  very  few  questions 
and  said  very  little.  His  conclusions  appeared,  I  suppose,  in 
the  report  of  the  commission  to  which  reference  has  here  been 
made. 

We  all  understand,  I  think,  that  the  whole  system  of  taxation 


20        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

was  voiced  in  the  remark  of  that  pretty  wise  old  man  of  many, 
many  generations  ago,  that  it  was  an  endeavor  to  get  the  most 
feathers  from  the  goose  with  the  least  squawking.  That  seems 
to  be  the  earnest  endeavor  of  those  who  are  trying  to  work  out 
some  simple  and  easy  plan  by  which  the  expenses  of  our  govern- 
ment can  be  paid,  getting  the  money  from  the  sources  where  the 
least  complaint  will  arise. 

I  was  extremely  interested  in  the  suggestion  that  was  made 
that  we  taxpayers  should  treat  the  governmental  agents  as 
honest  men.  I'd  like  to  pass  back  the  suggestion  that  it  would 
be  a  mJghty  fine  idea  if  the  governmental  agents  treated  the 
taxpayer  as  if  he  were  an  honest  man.  (Applause.)  Most  of 
us  are  perfectly  willing  to  perform  our  civic  duty  even  though 
it  be  at  some  sacrifice  to  ourselves.  Most  of  us  are  anxious  to 
bear  the  burden  of  citizenship  and  bear  it  properly  and  bravely 
and  honestly  and  we  don't  want  any  sympathy  from  anybody  in 
the  performance  of  our  duty,  for  we  recognize  it  as  an  existing 
thing  and  we  are  more  than  glad  to  respond  to  any  reasonable 
demand  that  may  be  made  upon  us,  but  we  want  to  be  treated 
fair  and  be  handled  at  least  with  as  much  consideration  as  is 
received  by  others  in  the  same  situation. 

I  have  no  apology  to  make  for  the  mining  industry  with  which 
I  have  been  pretty  familiar  for  something  like  40  years.  I  realize 
the  burdens  that  have  been  laid  on  it.  It  isn't  so  much  hostility 
to  the  mining  industry  as  it  is  anxiety  of  other  industries. 

When  we  met  at  Silver  City  we  found  (and  it  later  developed 
at  the  meeting  in  Santa  Fe  when  the  commission  was  in  session), 
the  real  trouble  was  that  there  seemed  to  be  large  areas  of  terri- 
tory of  the  state  of  New  Mexico  which  bore  no  burden  of  taxa- 
tion at  all.  The  real  complaint  there  was  addressed  against  the 
coal  mining  industry.  Some  of  those  operators  occupied  enor- 
mous tracts,  hundreds  of  thousands  of  acres  of  ground  under 
agricultural  working.  In  New  Mexico,  then  under  the  existing 
law,  they  paid  tax  on  that  entire  holding  based  on  the  produc- 
tion of  the  small  area  from  which  they  were  actually  mining 
coal,  with  a  valuation  on  the  surface  as  grazing  land  or  some- 
thing of  that  sort  That  had  been,  primarily,  the  great  trouble 
in  New  Mexico.  They  sought  what  they  called  a  valuation  of 
the  mining  property.  They  talked  a  lot  about  an  ad  valorem  tax 
but  it  very  soon  developed  that  they  didn't  know  what  ad 
valorem  meant. 

Some  of  us  took  the  position  that  every  dollar  that  is  taken 
out  of  a  mine,  metalliferous  or  coal  or  non-metal,  in  the  first 
instance  is  a  depreciation  of  the  capital.  It  is  a  taking  away  of 
the  substance  of  the  estate,  it  is  not  income,  it  is  a  return  of  the 
capital  investment  and  it  should  not  be  treated  as  income.  It 
is  not  available  in  that  sense.  Some  of  us  felt  that  very  strongly 
and  some  of  us  took  the  positron  which  I  am  prepared  to  define 
reasonably,  that  a  mine  is  worth  nothing  under  God's  heaven 


NATIONAL  MINE  TAX  CONFERENCE  21 

except  for  what  you  take  out  of  it.  The  value  of  your  mine  this 
year  is  what  you  take  out  of  the  mine  this  year,  and  the  value 
of  the  mine  next  year  is  what  you  take  out  of  it  next  year.  That 
did  not  meet 'with  the  approval  of  this  special  commission.  The 
thing  was  thrashed  out  very  extensively,  not  exactly  along  that 
line,  but  with  those  considerations  being  urged  as  matters  really 
affecting  the  ultimate  situation. 

The  commission  made  its  report  to  the  governor  and  the  legis- 
lature. A  bill  was  drafted.  A  substitute  bill  was  prepared  and 
submitted  by  the  committee  of  the  legislature  which  had  the 
matter  in  charge  and  that  bill  was  enacted  into  a  law  in  1921. 
It  doesn't  appear  on  the  summary  which  Mr.  Kriegh  prepared 
and  which  is  here,  because  he  did  not  have  it  available  when  he 
prepared  that  summary.  They  came  back  to  the  idea,  finally, 
in  New  Mexico,  that  the  value  of  a  mine  is  what  is  taken  out 
of  it. 

I  have  said  on  previous  occasions  something  which  I  would 
like  to  repeat  right  here.  The  difference  between  a  farm  and  a 
mine  is,  as  a  friend  of  mine  says  who  had  been  engaged  largely 
in  mining  enterprises  in  all  phases,  and  who  after  a  long  time 
begun  to  run  a  sugar  factory — much  to  his  unhappiness  after- 
wards— the  difference  between  a  mine  and  a  sugar  factory  or 
an  agricultural  enterprise  of  any  sort  is  that  in  the  agricultural 
enterprise  he  found  that  he  ran  that  sugar  mill  very  much  as  he 
did  a  mine  for  the  extraction  of  ore  but  the  ore  reserves  on  a 
farm  are  renewed  every  year  and  the  ore  reserves  of  a  mine  are 
not  renewed  at  all,  for  once  taken  out  they  are  gone  forever. 

So  finally  the  New  Mexico  legislature  enacted  a  law  that  the 
average  net  production  of  a  mine  for  5  years  shall  be  taken  as 
the  value  of  the  mine  for  taxing  purposes.  In  addition  to  that — 
if  I  am  not  right  on  this,  one  of  the  New  Mexico  gentlemen  will 
correct  me — the  equipment  and  the  plant  is  valued  as  other 
property  is  valued  and  in  addition  to  that  there  is  a  valuation 
placed  on  the  use  of  the  property  not  actually  devoted  to  mining 
to  the  extent  that  that  also  has  a  value.  So  those  are  the  three 
elements  which  now  enter  into  it,  substantially  as  the  situation 
was  before,  except  that  they  have  taken  five  years'  production 
and  averaged  it  in  order  to  reach  the  present  year's  valuation. 
That  is  going  to  hit  some  of  us  who  are  interested  in  New 
Mexico  mining  because  we  are  doing  nothing  this  year  and  if 
we  have  to  take  the  production  of  1916,  1917,  1918,  etc.,  when 
we  were  producing  rather  heavily,  it  will  make  a  high  tax  for  us. 

In  addition  to  that,  provision  was  made  in  the  New  Mexico 
law  for  the  apopintment  of  a  special  examining  engineer;  and 
under  that  provision  a  very  high  class  man,  Mr.  Findlay,  who 
had  much  to  do  with  the  administration  of  the  Michigan  tax 
law,  is  now  engaged  in  a  very  earnest  endeavor  to  reach  a  fair 
statement  of  the  actual  values  in  order  to  aid  the  state  tax  com- 
mission of  New  Mexico  in  adjusting  things  if  it  should  turn  out 


22        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

that  this  other  system  of  valuation  shall  not  appear  to  be  entirely 
fair. 

It  happens  that  I  am  more  familiar  with  the  Colorado  situation 
than  with  the  New  Mexico  situation.  For  a  number  of  years 
after  Colorado  was  admitted  to  the  union,  mines  as  such  were 
not  taxed.  It  was  felt  that  the  industry  of  the  state  should  be 
encouraged  and  the  industry  then  hadn't  got  old  enough  to  be 
weaned,  to  use  Champ  Clark's  expression.  The  mines  of  Colo- 
rado were  divided  into  two  classes.  The  coal  mines,  I  may  say, 
are  taxed  regardless  of  this  metal  mining  tax.  Their  taxation 
is  based  on  an  estimated  value  which  is  made  by  the  various 
assessors  under  the  direction  of  the  tax  commission.  There 
never  has  been  any  question  raised,  particularly  by  those  people. 
The  valuation  value  always  has  been,  at  least,  satisfactory  to 
the  coal  mines. 

Metal  mines  are  divided  into  two  classes :  the  productive  and 
non-productive.  A  group  of  mining  claims  operated  as  one  mine 
is  called  a  mine.  The  surface  improvements,  equipment  and 
everything  of  that  sort  are  valued  by  the  assessor  just  as  house- 
hold furniture  or  any  other  articles  in  his  jurisdiction  are  valued. 

A  mine  which  produces  less  than  $5,000  net  in  a  year  is  a  non- 
productive mine  and  is  valued  according  to  the  judgment  of 
the  taxing  authorities,  but  in  no  case  at  a  higher  valuation  than 
the  producing  mine  in  the  same  locality.  The  producing  mine 
is  taxed  on  a  valuation  of  its  net  output.  The  net  output  is  the 
actual  net  value  of  the  ore  after  deducting  the  actual  mining 
expense  but  not  general  supervision,  not  the  salaries  of  general 
officers,  not  big  overhead,  but  just  the  actual  cost  of  the  produc- 
tion, unless  that  is  less  than  one-fourth  of  the  gross.  That  is  a 
queer  provision.  They  figure  a  man  ought  to  make  25  per  cent 
on  his  operations.  The  taxing  officer  takes  the  return  that  is 
made,  finds  out  what  the  gross  value  is,  finds  the  net,  divides  the 
gross  value  by  4  and  uses  either  one  of  them,  whichever  is 
higher.    That  is  about  the  way  it  works  out. 

There  have  been  a  great  many  people  who  assisted  in  the 
mining  development  of  Colorado,  and  that  development  has  been 
anything  but  equal  to  the  agriculture  interests  of  the  state.  The 
farmers  have  sometimes  felt  that  the  miners  were  getting  a 
little  the  best  of  it.  They  have  not  approached  the  matter  with 
an  entire  earnestness  of  purpose  to  secure  absolute  fairness 
perhaps,  but  they  so  far  have  not  succeeded  in  materially  chang- 
ing this  law  which  has  been  in  force  with  us  for  years  and  which 
declares  in  substance  that  the  value  of  a  piece  of  mining  property 
is  what  is  taken  out  of  the  ground.  That  is  what  it  is  worth., 
After  it  is  taken  out  of  the  ground  it  appears  in  other  invest- 
ments and  is  added  to  the  wealth  of  the  country;  it  is  taxed  as 
wealth  of  the  country  is  taxed;  it  becomes  a  part  of  the  real 
property  of  the  country  but  at  that  particular  time  the  only  value 


NATIONAL  MINE  TAX  CONFERENCE  23 

that  a  mine  has,  in  our  estimation,  is  what  we  can  get  out  of  it. 
We  have  a  provision — of  course  all  states  have  that — that  all 
properties  shall  be  valued  for  assessment  and  taxation  at  its  full 
cash  value.  I  have  urged  and  shall  continue  to  urge  until  my 
mind  is  changed,  that  a  fair  cash  value  is  just  what  I  can  get 
out  of  it,  not  what  I  estimate  it  to  be  worth  in  the  future,  not 
what  I  imagine  I  can  get  out  of  it  years  to  come,  but  its  actual 
worth  I  can  get  for  it,  what  I  can  spend. 

There  was  an  expression  used  in  a  decision  of  a  lawsuit  in  the 
state  of  Washington  not  so  many  years  ago  which  rather  inter- 
ested me.  A  man  was  held  accountable  as  a  trustee  for  certain 
investments  and  he  had  reported  the  ownership  of  certain  stock 
in  a  mine  as  being  $10,000.  He  was  therefore  asked  to  account 
for  $10,000  in  cash.  The  judge  wiped  that  all  out  by  saying, 
''We  all  understand  that  the  valuation  of  a  mine  in  the  estima- 
tion of  the  owner  is  a  capitalization  of  his  hopes  and  dreams." 

Now  there  is  one  thing  I  want  to  speak  about.  Some  gentle- 
man suggested  to  me  when  the  matter  of  uniformity  of  state 
taxation  was  presented,  that  the  first  thing  we  have  got  to  get 
is  uniform  state  constitution  before  we  can  have  uniform  state 
laws.  Here  is  a  practical  difficulty  that  suggests  itself  to  me  in 
that  direction.  I  want  you  to  think  about  this.  In  many  states 
(you  have  heard  about  one  of  them),  the  valuation  for  taxation 
purposes  is  fixed  at  30,  40  or  50  per  cent,  of  the  estimated 
value  of  the  property.  In  other  states,  it  is  the  full  valuation  of 
the  property ;  it  is  so  in  my  state.  Now,  you  have  got  to  begin 
further  back  than  that  in  your  endeavor  for  uniformity  of  taxa- 
tion because  I  don't  hesitate  to  say  there's  not  as  great  discrim- 
ination in  the  rates  of  tax  in  two  different  states  as  there  is  in 
other  costs  of  production  of  the  minerals  from  the  ground.  The 
wages  paid  in  Montana  are  different  from  those  paid  in  Colo- 
rado; in  Arizona  they  are  different  from  both  of  them,  and  all 
of  them  are  different  from  the  wages  paid  in  the  mines  of  New 
York  state  where  there  is  some  mining  going  on  although  very 
few  of  us  know  about  it. 

The  burden  laid  on  the  producer  by  his  various  costs  of  pro- 
duction is  not  limited  to  taxation  and  while  taxation  is  an  im- 
portant feature  there  are  certain  other  elements  which  are  of 
equal  importance.  I  wasn't  asked  to  discuss  that  now  but  what 
I  was  trying  to  do  in  the  first  place  was  to  give  an  idea  of  the 
notion  that  prevails  in  some  of  the  western  states  at  least  about 
the  valuation  of  metal  mining  property  for  taxation  purposes. 
The  net  value  of  the  product  of  a  mine  is  written  in  the  con- 
stitution of  the  state  of  Montana,  a  difficulty  which  will  have 
to  be  met  if  there  is  to  be  any  such  uniformity  as  this.  This  is 
to  give  you  gentlemen  a  notion  of  what  some  of  us  in  the  West 
think  about  and  have  thought  about  the  value  for  assessment 
for  a  piece  of  mining  property  which  is  in  operation  and  from 
which  people  are  trying  to  make  some  money  for  themselves 


24        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

naturally  because  that  was  what  induced  them  to  get  into  the 
game.     (Applause.) 

CHAIRMAN  ARMITAGE:  Is  there  a  gentleman  present 
familiar  with  the  tax  in  the  mines  of  New  Mexico  who  would 
like  to  add  or  comment  on  the  statement  of  Judge  Stimson? 
We  would  be  glad  to  hear  from  them  on  the  subject  of  New 
Mexico  mine  tax  laws. 

MR.  BURTON  BUNCH  (Silver  City,  N.  M.) :  I  want  to 
thank  Judge  Stimson  for  making  it  possible  for  me  to  say  I  am 
usually  one  of  the  most  lucky  men  in  the  country.  I  thought  I 
might  have  to  say  something  and  the  Judge  covered  the  situation 
perfectly  with  regard  to  New  Mexico.  He  went  thoroughly  into 
the  New  Mexico  law. 

I  would  like  to  suggest,  if  the  crowd  is  interested,  that  I  have 
prepared  copies  of  the  mine  tax  provisions  of  the  new  revenue 
code  of  New  Mexico  for  distribution  at  tomorrow's  session.  If 
you  are  interested,  I  will  have  them  on  the  table  for  you. 

CHAIRMAN  ARMITAGE:  Judge  Stimson  referred  to  the 
law  of  Montana.  There  is  present  here  Mr.  Dan  Kelly,  a  lawyer 
in  Montana,  who  has  been  associated  with  the  Anaconda  Com- 
pany and  who  has  had  occasion  to  tackle  mine  problems  there. 
I  would  like  Mr.  Kelly  to  explain  to  you  the  method  of  taxation 
of  mines  in  the  state  of  Montana  and  the  peculiar  problems  con- 
fronted there. 

MR.  D.  M.  KELLY:  Representing  the  Anaconda  Copper 
Mining  Company  we  very  naturally  have  a  great  deal  to  do 
with  mine  taxes  in  the  state  of  Montana.  As  suggested  by  Judge 
Stimson,  we  have  a  constitutional  provision  which  was  written 
in  the  constitution  at  the  time  of  its  adoption  which  specifies  a 
particular  method  for  the  assessment  of  mines  in  Montana.  The 
first  provision  is  that  the  property  is  assessed  at  the  price  paid 
the  government,  either  $2.50  an  acre  or  $5  an  acre,  depending 
on  the  manner  in  which  it  was  secured.  All  machinery  and 
equipment  and  improvements  on  mines  are  taxed  as  other  prop- 
erty, in  addition  to  that,  if  the  surface  of  the  mining  claim  has 
any  value  independent  of  its  value  for  mining  purposes,  if  it  is 
used  for  any  other  purpose,  it  is  taxed  at  that  value.  To  illus- 
trate that,  the  entire  city  of  Butte  is  on  patented  mining  land 
and  the  town  property  there  is  taxed  on  the  basis  of  front  foot- 
age just  the  same  as  it  would  be  if  it  were  on  other  types  of 
patented  land,  and  the  owner  of  the  mineral  rights  pays  $5  an 
acre  on  surface  valuation  in  addition  to  the  tax  the  resident 
owners  pay  for  the  surface  rights  they  have.  The  machinery 
and  equipment  at  the  mine  is  taxed  like  other  property  of  like 
character.  The  net  proceeds  of  mines  are  taxed  annually  as 
other  property  is  taxed. 

Two  years  ago  we  had  a  report  of  a  temporary  tax  commis- 
sion appointed  by  the  legislature  of  two  years  previous  and  they 
recommended  and  there  was  adopted  a  classification  law  in  the 


NATIONAL  MINE  TAX  CONFERENCE  25 

state  of  Montana  providing  in  substance  that  all  property  is 
originally  valued  at  its  full  cash  value.  Theoretically,  that  was 
always  the  law.  Then  the  property  is  classified  for  the  pur- 
pose of  determining  the  value  upon  which  the  taxes  will  be 
figured ;  proceeds  of  mines  100  per  cent.,  real  estate  33^  per 
cent.,  machinery  and  other  equipment  40  per  cent.,  banks  40 
per  cent.,  money  credits  7  per  cent,  and  household  furniture  20 
per  cent.  I  believe,  so  that  the  average  of  all  property  in  Mon- 
tana, as  it  has  worked  out,  is  a  tax  on  a  little  bit  over  30  per 
cent,  of  the  actual  value,  whereas,  the  proceeds  of  the  mines 
are  taxed  on  100  .per  cent.  That  gets  us  in  about  the  same  posi- 
tion that  Utah  is  in.  I  believe  they  have  a  proceeds  tax  where 
they  multiply  by  three.     The  same  result  is  found  in  Montana. 

That  law,  this  year,  was  amended  but  not  to  change  it  funda- 
mentally. The  reports  of  the  mining  companies  instead  of 
going  to  the  local  assessors,  go  to  the  state  board  and  the  taxes 
are  figured  and  levied  by  the  State  Board  of  Equalization.  This 
system  of  taxation  has  been  added  to  by  the  last  legislature 
which  provides  a  visual  tax  oi  ly^  per  cent,  on  metalliferous 
mines.  We  have  in  addition  to  that,  10  cents  on  coal.  That  has 
worked  out  in  Montana  so  that  with  the  additional  1  per  cent, 
corporation  tax,  which  the  mining  companies  as  well  as  other 
corporations  have  to  pay,  in  one  year,  for  example,  the  Ana- 
conda Copper  Mining  Company  paid  $20.13  out  of  every  $100 
that  went  into  the  treasury  of  the  state  of  Montana — a  state 
nearly  700  miles  long  and  nearly  400  miles  wide,  which  has 
three  trans-continental  railroads  and  other  railroads  and  power 
companies  operating,  as  well  as  our  agricultural  and  merchan- 
dising institutions. 

Now  it  was  suggested  by  the  Chairman  at  the  opening  of  the 
meeting  that  uniform  system  of  taxation  would  be  helpful. 
I  have  no  doubt  that  any  system  of  taxation  that  can  be  uni- 
form would  be  helpful.  It  doesn't  follow  that  because  you  get 
a  uniform  law  you  would  get  uniform  taxes.  I  don't  think 
either  that  if  you  had  a  uniform  charge  per  pound  against 
copper,  zinc  or  other  metal  that  it  would  necessarily  follow  that 
taxation  would  be  uniform.  I  can  conceive,  for  example,  that 
there  might  be  a  mine  in  Arizona,  Utah,  New  Mexico  or  else- 
where that  had  one  hundred  million  pounds  of  copper  in  it 
which  could  be  produced  and  would  cost  10  or  11  cents  a  pound 
and  there  might  be  eleven  hundred  million  pounds  left  in  that 
mine.  Now  the  levy  of  a  tax  should  be  based  on  the  value  of 
the  eleven  hundred  million  pounds  of  copper  that  can  be  mined 
at  8  cents  a  pound.  That  copper  is  worth  more  money  in  the 
Butte  hills  even  if  mined  at  15  cents  a  pound.  If  the  tax  on 
the  copper  in  Montana  was  1  cent  a  pound  and  you  had  a  uni- 
from  tax  law,  the  charge  of  taxation  against  the  production  of 
copper  throughout  the  country  would  be  necessarily  unfair  and 
would  discriminate  against  the  owner  of  the  mine  who  had  the 


26        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

same  amounts  of  copper  in  his  mines  but  the  cost  of  production 
-would  necessarily  mean  fifty  or  one  hundred  per  cent.  more. 
I  don't  believe  myself  in  writing  a  statute  uniformly,  putting 
the  same  language  in  a  statute  and  having  it  adopted  by  the  leg- 
islatures throughout  the  country  that  will  not  necessarily  result 
in  uniformity  of  tax  burden.  You  say  it  applies  to  mines  rather 
than  to  real  estate  of  other  types.  The  mining  industry  of  Mon- 
tana is  bearing  a  larger  burden  than  the  mining  industry  of 
Colorado.  It  is  my  judgment  that  the  valuation  of  mines  and 
the  methods  of  taxation  are  such,  both  from  constitutional  pro- 
visions and  from  history  and  development  of -states  and  from 
different  types  of  industry  and  its  relation  to  other  industry  of 
the  same  state,  that  uniformity  of  statutory  enactment  doesn't 
mean  uniformity  of  taxation  at  all.  If  I  were  to  make  an  exam- 
ination of  taxes  in  different  states,  those  states  which  had  the 
highest  production  probably  would  have  the  highest  charges 
because  of  the  inequities  of  administration  of  tax  laws  generally. 

Mr.  FENNEL:   What  are  net  proceeds? 

MR.  KELLY :  Net  proceeds  is  the  gross  value  of  the  ores 
that  you  take  out  less  a  certain  portion  of  the  cost  of  getting 
them  out.  It  is  just  an  arbitrary  figure.  It  is  arrived  at  this 
way.  In  Montana  you  get  your  gross  return,  if  you  own  your 
smelter,  you  just  take  it  from  your  sales  of  copper  and  if  you 
sell  during  this  year  one  hundred  million  or  fifty  million  dollars 
worth  of  metal  you  are  entitled  to  deduct  from  that  your  smelt- 
ing cost,  your  transportation  from  the  mine  to  the  smelter,  the 
actual  cost  of  mining  the  ore  and  hoisting  it  to  the  surface  and 
loading  it.  None  of  your  overhead  goes  in,  none  of  your  tax, 
none  of  your  employees'  expenses  or  other  overhead,  and  no 
depreciation. 

Our  mine  tax  law  was  amended  this  year,  providing  for  an 
allowance  of  6  per  cent,  investment  in  smelters  where  the  mine 
operator  owns  his  own  smelter  because  of  the  fact  that  his 
smelter  was  naturally  depreciating  and  he  wasn't  getting  allow- 
ance on  that.  I  may  say  the  net  proceeds  system  is  used  in 
Montana,  Idaho,  Utah,  Colorado,  Nevada  and  New  Mexico,  I 
think.  The  system  is  difficult  in  Arizona  where  the  net  proceeds 
is  an  arbitrary  figure  arrived  at  by  subtracting  from  the  trans- 
portation your  smelting  charge  without  any  allowance  for  over- 
head or  depreciation  at  all. 

CHAIRMAN  ARMITAGE:  Mr.  Kelly,  have  you  any  figures 
that  would  tell  us  about  how  much  per  pound  of  copper  the  tax 
amounted  to? 

MR.  KELLY :  I  have  some  data  in  my  grip.  I'll  look  it  up. 
I  have  some  pamphlets  of  an  address  made  by  Mr.  Kelly,  presi- 
dent of  our  company,  and  Mr.  Evans,  chief  counsel.  I'll  be 
glad  to  furnish  you  with  them.  They  have  a  number  of  figures 
in  them,  whether  they  will  give  that  information  I  cannot  say. 


NATIONAL  MINE  TAX  CONFERENCE  27 

MR.  KRIEGH :  Hasn't  the  Montana  system  been  changed 
recently  by  a  court  decision  affecting  mineral  rights? 

MR.  KELLY:  No,  not  with  reference  to  the  taxation  of 
mines.  You  have  reference  to  the  taxation  of  mineral  reserva- 
tions. 

The  Northern  Pacific  Railroad  Company  had  a  large  land 
grant  in  Montana.  In  the  sale  of  lands  they  reserved  the  mineral 
rights.  After  having  disposed  of  the  entire  surface,  they  took 
the  position  that  since  mines  were  taxed  upon  their  net  proceeds 
and  their  surface  improvements,  this  mineral  right  which  they 
reserved  was  exempt  from  taxation.  The  court  sustained  the 
right  of  taxation  because  the  Northern  Pacific  Railroad  Com- 
pany in  the  reservation  of  the  minerals  under  the  ground  re- 
served the  right  to  enter  upon  the  ground  and  mine  it. 

CHAIRMAN  ARMITAGE:  Has  there  been  any  investiga- 
tion of  the  subject  of  mine  taxation. in  an  official  way  in  the 
state  of  Montana? 

MR.  KELLY:  This  tax  commission,  as  I  said,  had  the  entire 
tax  situation  to  investigate  and  report  on.  They  made  their 
report  to  the  legislature  two  years  ago.  They  recommended  to 
the  tax  commission  the  tax  classification  law  and  some  other 
minor  changes  and  they  left  the  mine  tax  system,  after  investi- 
gation, as  it  was.  They  made  no  further  recommendations  with 
reference  to  a  change  in  the  general  system  of  mine  taxation. 
A  great  deal,  of  course,  may  be  said  with  reference  to  this  mine 
taxation.     I  will  not  say  that  now. 

CHAIRMAN  ARMITAGE:  I  don't  know  whether  I  quite 
understood  your  statement  about  the  multiplication  of  three. 

MR.  KELLY:  You  get  the  same  result  as  if  you  taxed  the 
property  all  at  the  same  amount.  We  pay  three  times  as  much 
taxes  on  the  same  valuation  as  the  fellow  does  who  is  assessed 
at  33yi  per  cent.  If  your  net  proceeds  are  a  million  dollars, 
you  are  assessed  on  one  million  dollars.  If  a  merchant  turns 
in  orbe  hundred  thousand  dollars  worth  of  merchandise  he  is 
assessed  on  thirty-three  thousand  dollars  worth,  so  that  the 
mine  proceeds  are  taxed  three  times  as  much  as  the  merchandise 
or  the  farm  or  other  proceeds. 

CHAIRMAN  ARMITAGE:  Do  they  take  the  net  proceeds 
of  the  year? 

MR.  KELLY:  Of  the  year  on  an  average.  That  has  its 
advantage  from  the  standpoint  of  the  state.  You  have  your 
good  years  and  bad  years.  The  result  is  that  they  spend  all 
the  money  they  get  in  good  years  and  when  the  bad  years  come 
along  they  are  in  bad  shape.  Men  who  run  government  are  not 
usually  business  men.  It  would  be  a  good  idea  to  spread  the 
rnoney  around.  Mine  operators  wouldn't  like  to  pay  at  this 
time  on  the  last  five  years'  production  when  we  don't  have 
any  now. 


28        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

CHAIRMAN  ARMITAGE :  I  would  like  to  ask  Judge  Stim- 
son  a  question  about  New  Mexico.  I  think  he  said  they  use 
an  average  there  as  a  basis. 

JUDGE  STIMSON:    Five  years. 

CHAIRMAN  ARMITAGE:  What  do  they  do  when  one  of 
those  years  is  a  blank. 

JUDGE  STIMSON:    Still  divide  it  by  five. 

As  Mr.  Kelly  suggested,  that  is  going  to  work  pretty  hard 
this  year  because  we  have  no  production,  or  practically  no  pro- 
duction this  year  and  the  five  years  previous  were  good  years. 

CHAIRMAN  ARMITAGE:  Is  there  any  gentleman  present 
who  wants  to  add  to  Mr.  Kelly's  statement? 

Gentlemen,  it  is  now  half  past  four.  We  have  set  for  this 
meeting  tomorrow  morning  at  10  o'clock  a  series  of  discussions 
by  various  state  representatives  on  the  local  methods  of  taxa- 
tion in  those  states.  We  will  continue  that  meeting  as  long  as 
you  want  to,  even  into  the  afternoon  if  you  so  desire.  That  will 
be  the  real  meeting  at  which  you  will  have  an  opportunity  to 
discuss  the  different  methods  of  taxation  which  are  in  vogue  in 
the  various  states  and  the  effects  of  those  various  methods. 

The  meeting  adjourned  at  4:30  p.  m. 


NATIONAL  MINE  TAX  CONFERENCE  29 


NATIONAL  MINE  TAX  CONFERENCE 
WEDNESDAY  MORNING,  OCTOBER   19,  1921 

The  second  session  of  the  National  Tax  Conference  convened 
at  10:10  o'clock,  Mr.  Paul  Armitage  presiding. 

CHAIRMAN  ARMITAGE:  Gentlemen,  will  the  meeting 
please  come  to  order? 

Mr.  Kriegh  has  a  statement  to  make. 

SECRETARY  KRIEGH :  Mr.  Chairman  and  Gentlemen :  I 
was  very  much  pleased  with  the  statement  made  by  Judge 
Stimson  yesterday  that  the  mining  industry  isn't  endeavoring  to 
escape  bearing  its  just  proportion  of  the  tax  burden.  I  think 
that  is  the  feeling  of  every  member  engaged  in  the  industry.  I 
thought,  however,  after  discussing  the  matter  last  evening  with 
several  of  the  delegates,  that  it  would  be  well  to  define  the  pur- 
poses of  this  Conference  a  little  more  definitely  so  that  our 
ideas  will  be  directed  into  a  definite  channel. 

The  keynote  of  this  Convention  was  sounded  yesterday  by 
President  Loring,  in  a  luncheon  of  the  Directors  of  the  American 
Mining  Congress,  when  he  said  that  the  purpose  of  this  Conven- 
tion is  the  conservation  of  our  natural  resources  by  the  elimina- 
tion of  waste  and  inefficiency  in  mining  wherever  waste  and 
inefficiency  are  found. 

The  greatest  waste  that  is  going  on  today  in  the  mining  indus- 
try is  that  resulting  from  the  total  loss  of  enormous  tonnages 
of  ore  which  could  be  mined  at  a  profit  simultaneously  with  the 
extraction  of  high-grade  ores  if  it  were  not  for  high  taxes.  It 
may  be  impossible  to  secure  uniform  tax  laws.  We  must  not 
anticipate  the  early  accomplishment  of  such  a  program  but  what 
we  can  do  and  do  at  once  is  ascertain  and  publish  facts  which 
will  enable  the  state  legislatures  to  act  intelligently  at  least  when 
revenue  legislation  affecting  mines  and  mineral  land  is  being 
considered.  We  can  demonstrate  at  this  meeting  the  fact  that 
there  is  a  maximum  rate  of  taxation  beyond  which  taxes  cannot 
be  raised  without  serious  impairment  and  gross  wastage  of  the 
nation's  natural  wealth.  We  can  establish  without  doubt  the 
fact  that  increased  taxes  in  many  of  the  states,  instead  of  aug- 
menting state  revenues,  actually  reduce  the  volume  of  taxable 
property,  make  valueless  rock  of  an  enormous  tonnage  of  ore 
and  thus  destroy  forever  present  and  potential  sources  of  revenue. 

That,  gentlemen,  is  the  purpose  of  this  Conference,  to  bring 
before  the  public  the  facts  concerning  the  taxation  of  the  mining 
industry. 

CHAIRMAN  ARMITAGE :  Mr.  Kelly  has  given  us  copies 
of  the  address  of  Mr.  L.  O.  Evans  that  he  referred  to  in  his 
address  yesterday  and  they  are  here  for  any  of  you  gentlemen 


30        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

that  are  interested.     I  will  ask  Mr.  Kriegh  to  distribute  them. 

Now  before  we  continue  the  discussion  in  reference  to  state 
taxation,  I  wish  to  call  upon  a  representative  from  Mexico.  It 
seems  that  the  Secretary  of  Industry  of  Mexico  has  appointed 
a  special  delegate  to  this  Convention.  He  has  been  approved 
and  commissioned  by  President  Obregon  to  come  here  and 
explain  to  us  the  laws  of  Mexico  in  reference  to  the  taxation  of 
mines,  and  with  your  permission  I  will  interrupt  the  discussion 
of  state  taxation  to  call  on  Mr.  L.  de  Silva. 

SENOR  L.  de  SILVA:  Mr.  Chairman  and  Gentlemen:  As 
a  Mexican  delegate  I  am  going  to  give  you  a  lecture  about  taxa- 
tion on  the  mining  industry  in  the  Mexican  Republic,  as  a  mere 
matter  of  information. 

I  request  your  benevolence,  and  beg  your  pardon  on  account 
of  my  faulty  pronunciation  and  for  the  mistakes  that  I  make  in 
your  language  that  is  strange  to  me. 

The  metallic  wealth  of  Mexican  subsoil  has  been  considered, 
since  remote  times,  the  property  of  the  nation,  which  confers 
to  individuals  the  right  of  exploitation  under  certain  conditions. 
In  the  colonial  time  the  Spanish  Crown  had  a  direct  dominion 
or  control  over  said  wealth.  The  mining  regulations  stipulated 
the  form  in  which  the  private  corporations  could  acquire  mining 
concessions  for  their  exploitation,  and  stated  therein  the  amount 
of  royaUy  that  was  to  be  paid  to  the  Royal  Treasury. 

When  New  Spain  seceded  from  the  Mother  Country,  becoming 
the  Mexican  Republic,  the  old  mining  regulations  continued  in 
effect  until  the  year  1884.  In  1885  the  new  mining  laws,  strictly 
Mexican  legislation,  went  into  effect,  maintaining  the  principle 
that  the  nation  is  the  primitive  owner  of  the  mines  and  that  the 
title  is  granted  to  the  applicant  by  the  Public  Administration. 
The  taxation  assigned  to  the  mines  in  Mexico  is  based  on  this 
principle,  as  well  as  in  the  equity  of  contributing  all  branches  of 
national  activity  for  the  necessities  and  expenses  of  the  Nation. 

In  order  not  to  tire  the  benevolent  attention  of  my  hearers  I 
shall  only  speak  of  the  mining  taxes  in  effect  in  recent  times, 
this  in  my  opinion,  being  of  great  and  practical  interest. 

According  to  the  Mining  Tax  Law,  enacted  June  27,  1919, 
there  are  three  kinds  of  taxes :  first,  on  the  mining  property ; 
second,  on  the  metals  produced ;  and  third,  on  smelting,  assaying 
and  coining.  The  first  one,  or  tax  on  mining  property  or  Min- 
ing Tax,  is  an  annual  rate  paid  on  each  mining  claim  unit ;  the 
mining  claim  unit  is  the  pertenenciay  say  a  prism  of  indefinite 
depth  whose  outer  base  is  a  square,  100  meters  to  each  side  (say 
10,000  square  meters). 

A  mining  property  may  consist  of  one  or  more  pertenencias 
(unit  or  area),  without  any  limitation  whatever;  but  the  tax 
about  which  I  am  speaking,  tends  to  limit  the  control  of  great 
extensions  in  horizontal  area,  by  one  single  individual  or  cor- 
poration, because  the  annual  rate  per  claim  unit  increases  in 


NATIONAL  MINE  TAX  CONFERENCE  31 

proportion   to  the  number  of  pertenencias  owned   by   a   single 
individual  or  corporation,  in  the  following  manner: 

From  1  to  5  pertenencias  (hectareas)   the  annual 

rate  per  pertenencia  is $  6.00 

From    6  to    50  the  rate  is 9.00 

From  50  to  100  the  rate  is 12.00 

And  over  101  pertenencias,  the  rate  per  pertenencia 
is    18.00 

This  increase  of  rates  is  applied  considering  the  number  of 
pertenencias  owned  by  a  single  individual,  regardless  of  whether 
they  are  included  in  one  or  more  mining  properties,  and  provided 
they  are  located  within  the  jurisdiction  of  one  Mining  Agency. 

A  mining  property  under  Mexican  law  is  a  group  of  mining 
pertenencias  covered  by  one  mining  title. 

The  national  territory  is  distributed  among  93  mining  agen- 
cies. A  map  of  Mexican  mining  agencies  may  be  seen  at  the 
Mexican  booth  in  the  Coliseum.  The  tax  on  mining  property 
is  the  same  regardless  of  the  kind  of  metal  produced.  For  paying 
this  tax  the  year  is  divided  into  three  periods:  the  first  third  is 
paid  in  January;  the  second  third  in  May;  and  the  balance  of 
taxes  for  the  year,  in  September.  Should  payment  not  be  made  the 
first  month  of  the  period  but  in  the  second,  third,  or  fourth,  there 
is  added  a  penalty  of  10,  15  or  50  per  cent,  respectively.  If 
payment  is  not  made  within  the  whole  period,  the  mining  title 
becomes  liable  to  be  declared  void,  and  consequently  the  owner 
loses  his  rights  to  the  mining  property. 

In  addition  to  the  annual  mining  tax,  another  tax  of  10  pesos 
on  each  pertenencia  is  paid  when  the  title  is  issued. 

Second:     Tax  on  the  production  of  metals. 

The  second  kind  of  taxes  is  the  one  assessed  on  the  produc- 
tion of  metals ;  the  rates  vary  in  accordance  with  the  kind  of 
metal  produced.  Metals  used  in  the  national  industry,  such  as 
in  the  manufacture  of  jewelry,  gold  or  silver  work,  are  exempt. 

Gold  bullion  pays  7  per  cent,  on  its  valuation,  when  it  is  ex- 
ported or  sent  to  the  mint  for  coinage,  and  8  per  cent,  when  it 
is  exported  as  ore,  concentrates,  precipitates,  mattes,  or  assay 
by-products;  when  those  products  contain  only  two  grams  of 
gold  or  less  per  ton,  they  are  exempt. 

According  to  said  law,  silver  formerly  paid  the  same  tax  of 
7  and  8  per  cent,  as  gold,  under  the  same  circumstances,  whether 
in  bullion,  ore  or  products  more  or  less  treated ;  but  the  decrees 
of  June  15,  1920,  issued  on  account  of  the  drop  in  the  price  of 
silver,  which  began  at  that  time,  established  a  tariff  that  is  nov/ 
in  effect,  whereby  the  tax  rate  on  silver  bullion  gradually  de- 
creases in  proportion  to  the  fall  in  the  price  of  silver;  when 
silver  bullion  is  quoted  in  New  York  at  $1.40  or  more  per  ounce, 
the  rate  is  12  per  cent,  and  gradually  decreases  as  low  as  5  per 
cent,  when  the  price  is  60  cents  or  less.    The  rate  varies  from 


32        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

13  per  cent  to  5^  per  cent,  as  above,  when  silver  is  mixed  with 
other  substances  as  when  only  partially  treated. 

Later  on,  when  the  drop  of  the  white  metal  was  more  marked, 
the  tariff  was  amended  by  Decrees  of  December  24,  1920,  to 
protect  the  mining  industry  during  such  a  crisis.  When  the 
price  was  $1  or  less  per  ounce,  the  rate  would  decrease  as  low 
as  nothing,  when  silver  was  worth  60  cents  or  less,  but  main- 
taining the  previous  rates  when  the  price  per  ounce  exceeded  $1. 
However,  on  July  20,  1921,  a  new  decree  re-established  the 
tariff  of  June  15,  in  view  of  the  fact  that  an  economic  readjust- 
ment of  the  mining  industry  was  taking  place. 

When  silver  contained  in  ore  or  other  products  other  than 
bullion  does  not  exceed  250  grams  per  ton,  said  metal  is  exempt. 

Regarding  copper,  the  tax  was  definitely  set  when  the  law 
of  June  27,  1919,  was  enacted  and  the  rate  increases  in  propor- 
tion with  the  price  on  this  electrolytic  metal,  per  pound,  as 
quoted  in  New  York.  Another  fact  which  influences  the  varia- 
tion of  tax  rates  is  the  contents  of  copper,  whether  less  or  more 
than  50  per  cent,  and  the  amount  of  precious  metals  which 
accompany  the  red  metal,  in  the  following  manner: 

In  bullion  mattes  or  concentrates  containing  more  than  50 
per  cent,  of  copper  and  more  than  300  grams  of  silver  or  5 
grams  of  gold  per  ton  the  rate  is  60  on  each  1,000  on  the  valua- 
tion of  copper,  if  the  price  quoted  in  New  York  is  0.25  cents 
per  pound;  the  rate  gradually  decreasing  as  low  as  1  on  1,000 
when  the  price  is  0.10  cents  or  less. 

Under  the  same  circumstances,  but  if  the  contents  of  silver 
does  not  reach  300  grams,  or  5  grams  of  gold  per  ton  the  highest 
and  lowest  rates,  for  the  prices  of  .25  and  .10  cents  are  the  same 
as  above,  but  for  the  intermediate  prices,  from  .25  to  .15  cents, 
the  rates  are  remarkably  lower. 

On  ore  and  concentrates  containing  50  per  cent,  of  copper  or 
less,  the  tariff  is  made  out  under  the  same  basis  but  the  rates 
are  much  higher  than  the  avoce,  for  the  purpose  of  inducing  a 
complete  metallurgical  treatment  in  Mexico,  at  least  to  obtain 
commercial  copper.  These  rates  gradually  vary  between  80  for 
each  1,000  when  the  price  is  25  cents  or  more,  and  15  for  each 
1,000  when  the  price  is  13  cents.  When  the  price  is  less  than 
13  cents  the  rate  is  the  same  as  stated  above. 

The  decrees  of  December  29,  1919,  and  December  23,  1920, 
issued  on  account  of  the  drop  in  the  price  of  copper,  amended 
some  of  the  rates,  especially  those  on  ore  and  concentrates,  com- 
pletely releasing  the  tax  on  copper  when  its  price  was  less  than 
15  cents.  In  addition  copper  ore  containing  3  per  cent,  or  under 
of  copper  is  also  released. 

At  present  lead  is  also  released  from  production  tax  in  virtue 
of  a  decree  issued  March  17,  1921,  for  the  purpose  of  encourag- 
ing the  production  of  silver-bearing  lead. 


NATIONAL  MINE  TAX  CONFERENCE  33 

Two  per  cent,  on  the  valuation  is  paid  on  tungsten,  molyb- 
denum, manganese,  graphite  and  quicksilver. 

One  per  cent,  on  the  valuation  is  paid  on  zinc,  antimony  and 
other  metals  not  mentioned  above. 

The  Mexican  states  may  assess  a  tax  on  production  of  metals 
not  to  exceed  2  per  cent,  of  their  valuation. 

The  tax  on  smelting,  assaying  and  coining  constitutes  the 
third  mining  tax.  The  coinage  tax  is  assessed  when  the  pre- 
vious metals  are  sent  to  the  mint  for  coinage  purposes ;  gold 
paying  ^^  of  1  per  cent.,  and  silver  2  per  cent,  of  their  valuation ; 
the  smelting  tax  is  paid  when  due  to  lack  of  homogeneity  in  the 
bullion  it  is  necessary  to  resmelt  it  over  again  to  assay  with 
accuracy  the  rate  is  15  cents  per  kilogram,  when  the  gold  does 
not  exceed  100  thousandths;  25  cents  if  it  exceeds  this  figure 
without  reaching  .945,  and  $3  when  it  exceeds  the  last  figure. 
The  assaying  tax  is  paid  for  the  analysis  which  is  necessary  to 
practice  in  order  to  figure  out  the  production  tax;  the  rate  va- 
ries from  $1.50  to  $3  for  each  bar  or  lot  of  determined  weight; 
viz.,  10  kilograms  for  gold  bars ;  35  kilograms  for  silver  bars,  10 
tons  for  lead,  copper  and  other  metals  in  bars.  When  the  weight 
of  the  bar  or  lot  exceeds  those  indicated  above,  the  assaying 
tax  rate  is  a  little  larger. 

I  have  just  explained  in  a  brief  manner  how  the  mining  indus- 
try is  taxed  in  Mexico.  My  best  wish  is  that  this  information 
may  be  of  some  usefulness  to  the  honorable  members  of  this 
Twenty-fourth  Convention  of  the  American  Mining  Congress. 
I  regret  that  the  short  time  at  my  disposal  prevents  me  from 
dealing  on  this  matter  in  a  more  ample  way,  for  it  is  interesting, 
in  my  opinion  to  give  a  broader  idea  of  this  subject;  but  I  have 
the  honor  to  place  myself  at  the  orders  of  anyone  interested  in 
obtaining  further  details  on  the  subject,  and  I  will  be  more 
than  glad  to  privately  furnish  him  with  whatever  information 
he  may  desire.    (Applause.) 

CHAIRMAN  ARMITAGE:  I  believe  we  should  have  some 
copies  of  Senor  de  Silva's  paper  mimeographed  for  distribution 
to  any  of  the  members  that  would  leave  their  names  with  Mr^ 
Kriegh,  or  request  it?  I  would  like  very  much  to  have  a  copy 
of  it. 

I  was  going  to  call  the  attention  of  you  gentlemen  to  the  fact 
that  the  state  of  Louisiana,  in  February,  1921,  had  made  and 
published  a  report  of  the  assessment  and  taxation  commission 
to  their  constitutional  convention.  It  seems  to  be  a  very  care- 
fully prepared  and  thorough  discussion  of  the  subject  of  state 
taxation,  with  some  very  interesting  appendices  to  it.  They 
have  a  very  interesting  appendix,  for  example,  of  the  investi- 
gation that  they  made  of  the  mine  taxation  system.  It  seems 
that  one  of  the  members  of  this  Louisiana  Tax  Commission  took 
a  tour  around  various  states  and  in  that  tour  he  interviewed  the 
heads  of  various  tax  commissions  and  tax  officials  and  he  had 


34        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

the  interviews  taken  down  stenographically  and  that  is  an  ap- 
pendix to  this  report.  Mr.  Kriegh  has  succeeded  in  getting  4. 
I  have  one  of  those  4  and  I  think  he  can  get  some  more  for  any 
of  you  gentlemen  who  would  be  interested  in  that.  If  a  suffi- 
cient number  want  them  I  think  the  state  of  Louisiana  would 
publish  some  extra  copies.  If  any  of  you  gentlemen  want  a 
copy  of  that  report  or  a  copy  of  this  report  of  the  special  revenue 
commission  of  New  Mexico,  I  think  it  would  be  better  to  get 
them  through  the  Mining  Congress.  I  think  if  the  American 
Mining  Congress  took  it  up  with  them  they  would  take  the 
trouble  of  publishing  additional  reports  and  sending  them  on. 

We  have  with  us  today  various  representatives  appointed  by 
the  governors  of  the  different  states  to  explain  the  laws  in  rela- 
tion to  mine  taxation  of  those  states.  I  think  I  would  like  to 
call  upon  the  Minnesota  representative.  Mr.  Armson  is  a 
member  of  the  Minnesota  Tax  Commission  and  is  familiar  with 
the  laws,  and  I  take  pleasure  in  introducing  him.  He  has  come 
especially  at  the  request  of  the  Congress  to  explain  these  tax 
laws  and  the  method  of  taxing  mines. 

HON.  J.  G.  ARMSON :  Mr.  Chairman  and  Gentlemen  of  the 
Conference:  If  you  will  permit  a  word  of  personal  apology  this 
morning  I  would  like  to  make  it.  It  had  been  my  wish  to  be 
present  yesterday  at  your  conference  but  owing  to  illness  I  was 
not  able  to  come  down  and  I  was  a  little  doubtful  last  night 
whether  I  should  attempt  the  trip  or  not  but  I  did,  and  I  am 
glad  to  say  that  I  feel  fairly  fit  this  morning. 

In  order  that  I  might  not  take  up  too  much  of  your  time  and 
say  briefly  just  what  I  want  to  say,  I  have  committed  some  of 
my  thoughts  to  paper,  and  with  your  indulgence  I  will  read 
rather  than  speak  to  you  extemporaneously  this  morning. 

Mr.  Armson  presented  his  prepared  manuscript  on  "Mine 
Taxation  in  Minnesota,"  as  follows : 

Less  than  a  generation  ago  Minnesota  was  regarded  as  mainly 
an  agricultural  state.  Today,  while  we  still  have  our  fertile 
agricultural  lands,  we  not  only  lead  all  of  our  sister  common- 
wealths in  the  production  if  iron  ore,  but  for  some  years  past 
our  state  has  produced  more  than  60  per  cent,  of  all  iron  ore 
mined  in  the  United  States. 

While  it  was  known  more  than  50  years  ago  that  Minnesota 
had  considerable  deposits  of  iron  ore,  it  was  well  in  the  nineties 
before  these  deposits  began  to  assume  commercial  importance. 
Since  the  initial  shipment  was  made,  and  up  to  the  beginning  of 
the  present  year,  more  than  615,000,000  tons  of  iron  ore  have 
been  shipped  out  of  the  state,  and  we  still  have  a  remaining 
measured  tonnage  of  merchantable  iron  ore  of  more  than 
1,300,000,000  tons  in  the  ground.  In  addition,  we  have  hundreds 
of  millions  of  tons  of  low  grade  and  magnetic  ores  that  are  not 
now  merchantable  but  in  time  will  be  made  commercially  val- 
uable by  improved  methods  of  benefaction. 


NATIONAL  MINE  TAX  CONFERENCE  35 

The  state  began  to  give  special  attention  to  the  taxation  ot 
iron  ore  about  the  time  the  first  shipments  were  made  from  the 
Vermilion  range.  Our  earliest  law  imposed  a  tax  of  1  cent. 
per  ton  on  all  ore  mined  in  the  state.  This  tax  was  in  lieu  of 
all  other  taxes  and  assessments  on  mining  property,  the  law 
apparently  being  designed  to  encourage  the  development  of 
mining  industry  in  the  state. 

The  output  or  tonnage  tax  remained  in  force  until  1897,  when 
it  was  repealed  by  Chapter  40,  Laws  of  1897,  following  an 
opinion  rendered  the  previous  year  by  the  attorney  general  that 
the  law  was  unconstitutional.  Since  that  time  iron  ore  in  this 
state,  both  mined  and  unmined,  has  been  assessed  and  taxed  on 
the  ad  valorem  basis. 

Prior  to  1914  the  laws  of  the  state  required  all  property  to 
be  assessed  and  taxed  at  its  true  and  full  value.  This  law,  how- 
ever, had  never  been  observed  or  enforced  by  assessing  officials. 
Instead,  the  practice  of  assessing  property  at  a  percentage  of  full 
value  had  become  so  universal  throughout  the  state  as  to  have 
almost  the  force  of  law,  and,  in  a  measure,  to  receive  legislative 
sanction,  for  practically  all  of  our  revenue  laws  were  based  on 
the  assessment  of  property  at  less  than  its  full  value. 

By  Chapter  483,  Laws  of  1913,  effective  January  1,  1914,  prop- 
erty was  divided  into  four  classes  for  purposes  of  taxation,  each 
class  being  subject  to  assessment  and  taxation  at  a  different  per- 
centage of  true  and  full  value.  Iron  ore,  whether  mined  or 
unmined,  constitutes  Class  1  and  is  subject  to  taxation  at  50 
per  cent,  of  its  true  and  full  value.  This  is  the  highest  percent- 
age applied  to  any  of  the  four  classes.  Class  2  being  subject  to 
taxation  at  25  per  cent..  Class  3  at  33J^  per  cent,  and  Class  4  at 
40  per  cent,  of  true  and  full  value. 

In  the  earlier  years  of  the  application  of  the  ad  valorem  tax 
method  to  iron  ores  no  serious  attempt  was  made  to  adopt  any 
scientific  rule  of  valuation.  No  reports  of  tonnages  and  mining 
or  other  cost  data  were  required  from  mining  companies,  and 
hence  no  reliable  information  was  available  upon  which  such 
properties  could  be  even  approximately  valued  for  purposes 
of  taxation.  As  a  consequence,  the  assessment  of  iron  ore  in 
those  early  days  was  largely  a  matter  of  guess,  or  of  compromise 
between  assessing  officiajs  and  mine  owners  and  operators. 

Among  other  subjects  that  first  engaged  the  attention  of  the 
tax  commission  when  it  was  organized  in  1907  was  that  of  some 
method  of  measuring  the  taxable  value  of  real  property  other 
than  mere  guess,  or  arbitrary  opinion,  or  the  revenue  needs  of 
a  community,  methods  that  had  so  long  prevailed  throughout  the 
state  in  the  assessment  of  all  kinds  of  property.  After  careful 
investigation  and  study  of  the  subject,  it  was  decided  that  the 
selling  price  of  property  not  only  fairly  represented  its  taxable 
value,  but  at  the  same  time  was  in  harmony  with  the  law  which 
provides  that  the  price  for  which  property  sells  at  private  sale 


36        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

shall  be  taken  as  the  "true  and  full"  value  of  such  property  for 
purposes  of  taxation,  hence  the  adoption  by  the  tax  commission 
of  the  "sales  method"  of  determining  the  taxable  value  of  all  real 
property. 

But  it  was  found  that  sales  of  fee  title  to  ore  properties  were 
not  sufficiently  numerous  to  justify  their  use  as  a  measure  of  the 
taxable  value  of  such  properties.  The  leasing,  rather  than  the 
absolute  sale  of  ore  properties,  v^as  the  method  most  generally 
followed  in  the  ore  belt.  As  a  consequence,  the  tax  commission 
was  obliged  to  adopt  a  rule  other  than  that  of  the  sales  method 
for  the  valuation  of  ore  properties.  It  was  finally  decided  that 
the  selling  price  of  ores  at  Lake  Erie  docks,  less  the  cost  of 
mining  and  shipping  the  same,  fairly  determined  the  present 
values  of  such  ores  in  the  ground.  As  it  would  be  manifestly 
impossible  to  mine  and  ship  all  of  the  ore  deposits  in  a  single 
year  or  in  a  dozen  years,  it  became  necessary,  in  order  to  ascer- 
tain the  present  value  of  the  future  worth  of  such  ores,  to  apply 
a  percentage  discount  to  present  values  extending  over  the  ex- 
pected life  of  the  mines,  the  latter  being  basd  on  measured  ton- 
nages and  average  expected  annual  shipments. 

This,  in  brief,  is  the  method  followed  by  the  tax  commission 
in  valuing  iron  ore  in  the  ground  for  purposes  of  taxation.  It 
may  be  aptly  described  as  the  net  profit  method  of  ascertaining 
the  taxable  value  of  iron  ore  deposits.  The  tax,  of  course,  is 
applied  to  the  value  thus  ascertained,  and  not  directly  to  the 
profits.  But  in  effect  it  is  similar  to  a  net  profits  tax,  because 
under  this  method,  in  the  final  analysis,  profits  determine  the 
values  upon  which  the  ad  valorem  tax  is  levied. 

In  valuing  iron  ore  the  following  factors  are  taken  into  con- 
sideration: 

(1)  The  measured  tonnage  of  ore  as  of  a  given  period;  (2)  the 
grade  of  the  ore;  (3)  the  character  of  mining;  (4)  market  value 
of  the  ore;  (5)  cost  of  mining;  (6)  profit  from  operation; 
(7)  expected  life  of  the  property;  (8)  present  value  of  future 
profit  based  on  the  expected  life  of  the  property. 

To  give  a  concrete  example  of  the  application  of  these  factors, 
let  us  assume  that  a  given  property,  fully  developed  and  in  oper- 
ation as  an  underground  mine,  contains  a  deposit  of  3,000,000 
tons  of  iron  ore,  grading  51.50  per  cent  in  natural  iron  content, 
and  of  a  non-Bessemer  standard.  It  is  found  that  the  average 
market  price  of  this  grade  of  ore  at  Lake  Erie  ports  for  a  5-year 
period  was  $4.50  per  ton.  The  average  cost  of  mining  during 
the  same  5-year  period  was  $3.00  per  ton  leaving  a  net  profit 
of  $1.50  per  ton  on  the  ore  mined  and  shipped.  Assume  average 
annual  shipments  of  100,000  tons.  Based  on  this  average  of 
annual  shipments  the  life  of  the  mine  would  be  30  years.  The 
present  value  of  $1.50  per  ton  extended  over  a  period  of  30 
years,  discounted,  say  at  8  per  cent.,  would  be  approximately 
56%  cents.    Applying  this  rate  to  the  tonnage  in  the  mine,  we 


NATIONAL  MINE  TAX  CONFERENCE  37 

find  the  present  value  of  the  3,000,000  tons  of  ore  would  be 
$1,687,500. 

For  purposes  of  taxation  mines  are  classified  according  to 
grade  of  ore  and  character  of  mining  as  follows :  Class  1,  open 
pit,  low  mining  cost,  high  grade  ore ;  Class  2,  open  pit,  moderate 
mining  cost,  medium  grade  ore;  Class  3,  open  pit,  high  mining 
cost,  mixed  grade  ore;  Class  4,  underground,  low  mining  cost, 
high  grade  ore;  Class  5,  underground,  moderate  mining  cost, 
medium  grade  ore;  Class  6,  underground,  high  mining  cost, 
mixed  grade  ore;  these  classes  are  further  divided  into  "active 
mine  tonnages"  and  ''reserve  tonnages,"  the  former  including 
developed  tonnages,  whether  active  or  inactive,  and  the  latter 
undeveloped  tonnages  held  for  future  operation. 

Based  on  the  valuation  factors  enumerated  in  a  preceding 
paragraph,  the  value  per  ton  of  the  ore  in  the  different  classes 
of  mines  in  1920  was  as  follows :  Class  1,  active  80.22  cents, 
reserves  51.04  cents;  Class  2,  active  72.88  cents,  reserves  43.68 
cents;  Class  3,  active  65.72  cents,  reserves  36.54  cents;  Class  4, 
active  55.86  cents,  reserves  26.66  cents;  Class  5,  active  46.20 
cents,  reserves  2436  cents;  Class  6,  active  34.02  cents,  reserves 
19.54  cents. 

Perhaps  it  should  be  stated  that  while  the  rates  above  enumer- 
ated are  generally  applied  to  all  mines  falling  within  the  respec- 
tive classes,  occasional  modification  of  the  rate  is  made  where 
abnormal  mining  conditions  or  other  unusual  circumstances 
render  the  standard  rate  unfair. 

The  total  measured  tonnage  of  merchantable  iron  ore  in  the 
state  on  May  1,  1920,  the  latest  available  year,  amounted  to 
1,341,674,538  tons.  These  tonnages  were  valued  for  purposes 
of  taxation  at  $591,556,698,  or  an  average  value  per  ton  of  approx- 
imately 44  cents.  Under  the  laws  of  the  state  iron  ore,  whether 
mined  or  unmined,  is  taxable  at  50  per  cent  of  full  value.  The 
taxable  value  of  iron  ore  in  1920  was  therefore  $295,778,349,  the 
average  taxable  value  per  ton  being  22  cents. 

In  Minnesota  public  revenues  are  derived  mainly  from  the 
general  property  tax,  supplemented  in  part  by  a  gross  earnings 
tax  on  railroads  and  certain  other  public  service  corporations. 
All  property  not  specifically  taxed  is  subject  to  state  and  local 
levies.  The  state  levy  is  at  a  uniform  rate  on  all  .property,  but 
local  levies  vary  in  different  taxing  districts  according  to  local 
needs.  Iron  ore  is  therefore  subject  to  the  same  tax  levies — 
state  and  local — as  all  other  property  subject  to  the  general 
property  tax,  except  money  and  credits. 

The  total  of  taxes  levied  for  all  state  and  local  purposes  on 
mineral  property  in  1920  amounted  to  $20,255,223.  Of  this 
amount  the  state  levied  $1,603,119,  and  the  counties  and  local 
districts  $18,652,104.  If  all  taxes  imposed  on  mineral  property, 
whether  active  mines  or  reserve  ores,  should  be  charged  against 
the  ore  mined,  the  levy  last  year,  based  on  an  output  of  39,500,- 


38        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

000  tons,  would  represent  an  average  charge  per  ton  of  approxi- 
mately 51%  cents.  Of  this  amount,  4  cents  represents  state 
levies  and  47^/4  cents  county  and  local  levies.  Based  on  the 
total  measured  tonnage  of  merchantable  ores,  the  tax  last  year 
was  approximately  1%  cents  per  ton. 

That  twenty  and  a  quarter  million  dollars  levied  in  taxes  on 
the  mineral  property  in  a  single  year  is  a  considerable  burden 
on  the  mining  industry  of  the  state  will  not  be  denied.  Less 
than  8  per  cent,  of  this  amount,  however,  represents  a  state 
burden.  Local  levies  are  largely  responsible  for  the  heavy  taxes 
paid  by  mining  companies. 

Let  me  cite  just  a  few  instances  of  heavy  local  levies.  The 
average  per  capita  levy  for  local  and  school  purposes  in  17  cities 
and  villages  in  the  state,  not  located  in  the  mining  districts, 
amounted  to  $3L89  in  1920,  while  in  17  cities  and  villages  lo- 
cated in  the  mining  districts  the  average  per  capita  levy  for 
local  and  school  purposes  last  year  was  $164.29.  The  levy  in 
one  village  of  about  2,000  inhabitants  represented  a  per  capita 
tax  of  $557.28  for  every  man,  woman  and  child  in  the  village. 
Another  village  levied  $320.16,  one  $263.15,  and  another  $244.91, 
while  the  so-called  "richest  village  in  the  world"  had  a  per 
capita  tax  levy  for  local  and  school  purposes  of  $222.13  for  each 
of  its  15,000  inhabitants. 

An  effort  was  made  at  the  last  session  of  the  state  legislature 
to  curb  extravagant  local  tax  levies  by  placing  a  per  capita 
limitation  on  the  amount  that  might  be  levied  for  local  and 
school  purposes.  Under  existing  general  laws  the  limitation 
is  based  on  assessed  value,  but  this  limitation  is  practically 
worthless  in  districts  having  large  taxable  values  due  to  iron 
ore  deposits.  A  bill  limiting  the  per  capita  levy  for  local  and 
school  purposes  to  an  amount  not  exceeding  $90.00  per  inhab- 
itant was  introduced  in  the  legislature  early  this  year,  biit  be- 
fore its  final  passage  the  amount  had  grown  to  $160.00.  While 
even  this  large  per  capita  limitation  will  curb  local  tax  levies 
in  some  mining  districts,  it  will  still  permit  a  per  capita  tax 
levy  in  mining  districts  almost  five  times  greater  than  the 
average  tax  levy  for  like  purposes  in  non-mining  districts. 

There  is  one  other  law  affecting  mine  taxation  to  which  I 
desire  to  make  brief  reference. 

For  more  than  a  dozen  years  the  so-called  "tonnage  tax" 
question  has  engaged  the  attention  of  the  state  legislature  at 
each  of  its  sessions.  In  1909  a  bill  passed  both  branches  of  the 
legislature  imposing  a  tax  varying  from  2  cents  to  5  cents,  based 
on  metallic  content,  on  all  ore  mined  during  the  year,  but  the 
bill  was  vetoed  by  the  governor. 

At  the  extra  session  of  the  legislature  held  in  1919  another 
bill  passed  both  branches  imposing  a  tax  equal  to  5  per  cent,  of 
the  value  of  the  ore  produced  and  shipped  during  the  year,  less 


NATIONAL  MINE  TAX  CONFERENCE  39 

certain  mining  and  shipping  costs.  This  bill  was  also  vetoed 
by  the  governor. 

A  new  tonnage  tax  bill  in  the  guise  of  an  occupation  tax  made 
its  appearance  in  the  legislative  session  of  1921  and  was  enacted 
into  law.  Under  this  law  a  tax  is  imposed  on  persons  or  cor- 
porations engaged  in  mining  iron  ore  equal  to  6  per  cent,  of  the 
valuation  of  all  ores  mined  during  the  year.  The  valuation  upon 
which  the  tax  is  imposed  is  the  value  of  the  ore  at  the  mouth 
of  mine,  less  the  cost  of  mining  and  shipping  the  same,  such 
value  and  costs  to  be  determined  by  the  tax  commission. 
Royalties  paid  are  included  in  deductible  costs. 

Mining  companies  are  required  to  make  detailed  reports  to 
the  tax  commission  showing  amount  and  grade  of  ore  produced, 
mining  and  shipping  costs,  the  market  or  selling  value  of  the 
ore  and  such  other  information  as  the  commission  may  require. 

The  tax  imposed  under  the  law  is  due  on  May  1st  of  each 
year,  and  if  not  paid  before  June  1st,  a  penalty  of  10  per  cent, 
attaches.  The  tax  is  in  addition  to  all  ad  valorem  taxes — state 
and  local — and  is  to  be  paid  into  the  state  treasury  and  credited 
to  the  general  revenue  fund  of  the  state. 

The  new  law  is  not  a  child  of  the  tax  commission.  While  the 
commission  at  the  request  of  the  committee  having  the  bill  in 
charge,  aided  in  its  preparation,  it  does  not  then,  nor  does  it  now, 
approve  of  the  underlying  principle  of  the  law.  The  occupation 
tax  theory  of  the  law  does  not  appeal  to  at  least  a  majority 
of  the  commission,  while  the  rate  of  tax  imposed  under  the  law 
is  regarded  as  excessice.  In  its  last  biennial  report  the  com- 
mission discussed  the  tonnage  tax  question  at  some  length.  But 
it  did  not  recommend  a  tonnage  tax.  It  did,  however,  recom- 
mend that  if  a  so-called  tonnage  tax  law  was  enacted,  the  taxes 
imposed  under  it  should  be  in  lieu  of  all  other  state  taxes  on 
mineral  property,  and  that  the  tax  base  for  county  and  local 
purposes  should  be  reduced  from  50  per  cent,  to  333^  per  cent, 
of  full  value,  in  order  that  the  ad  valorem  tax  burden  imposed 
on  mineral  property  should  not  be  greater  than  that  imposed 
on  farm  property. 

Neither  of  these  recommendations  was  adopted  by  the  legis- 
lature. The  tax  imposed  under  the  law  is  an  additional  burden 
on  mining  companies,  w^hile  the  tax  base  for  ad  valorem  taxa- 
tion remains  at  50  per  cent  of  full  value. 

As  the  constitutionality  of  the  new  law  will,  in  all  probability, 
be  contested  in  the  courts,  any  comment  or  criticism  of  its  pro- 
visions on  the  part  of  the  commission  charged  with  its  adminis- 
tration would  neither  be  appropriate  nor  advisable  at  this  time. 

MR.  ARTHUR  THACHER:  Mr.  Chairman,  these  taxes  I 
understand  are  just  state  taxes.  In  addition  to  that,  of  course, 
the  mining  companies  have  the  federal  and  income  taxes  and 
when  you  come  to  add  all  these  different  ones,  state,  local  and 


40        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

federal  taxes,  you  can  see  at  once  you  get  a  tremendous  figure 
as  a  tax  on  the  iron  and  ore. 

MR.  CHAS.  R.  HOWE  (Arizona):  In  addition  to  your 
twenty  million  dollars  tax  that  you  say  is  placed  on  the  mining 
by  the  ad  valorem  system,  do  you  also  impose  a  6  per  cent,  tax? 

MR.  ARMSpN:  We  do,  Mr.  Howe,  under  the  new  law.  If 
the  state  sustains  the  law  it  is  an  additional  burden. 

MR.  HOWE:  Approximately  how  much  more  would  that 
add  to  the  twenty  million? 

MR.  ARMSON:  During  a  discussion  of  the  legislature  it 
figured  at  approximately  four  and  a  half  million  dollars.  That, 
however,  would  vary.  They  are  going  into  court  and  attack 
the  constitutionality  of  the  tax.  This  year  if  the  mining  com- 
panies pay  the  tax  it  won't  be  very  large  because  the  mining 
operations  have  been  very  much  reduced,  but  on  an  assumed 
average  annual  production  of  forty  million  tons,  it  was  esti- 
mated the  tax  would  run  between  four  and  four  and  a  half 
million  dollars. 

MR.  HOWE:  That  would  aggregate  something  like  twenty- 
five  million  dollars  annually  for  state,  county  and  local  purposes. 
Is  that  correct? 

MR.  ARMSON:  That  is  correct  in  a  measure.  The  figures 
that  I  have  given  you  on  local  taxation  were  those  of  1920,  the 
levy  made  last  June  and  payable  this  year.  They  haven't  always 
been  as  high  as  that.  They  may  not  always  be  as  high  in  the 
future  although  I  think  this  year  there  won't  be  any  substantial 
reduction.  The  total  taxes  2  years  ago  or  3  years  ago  at  any 
rate  wouldn't  be  more  than  half  the  figures  I  gave  you  just  now. 

I  want  to  say  with  due  respect  to  my  mining  friends,  a  num- 
ber of  whom  I  see  here,  that  notwithstanding  those  high  taxes 
of  a  year  ago,  the  federal  government  imposed  a  tax  2  years 
ago  of  still  larger  amount  on  income  and  excess  profits  and  I 
didn't  hear  so  much  complaint  about  the  federal  tax.  There 
is  something  peculiar  about  that,  you  know.  When  we  pay  a 
federal  tax  we  do  a  little  bit  of  grumbling  but  when  it  comes 
to  state  tax  we  stand  up  on  our  feet  and  holler. 

The  mining  companies  on  their  output  of  1918  paid  a  federal 
tax  of  $21,272,000.  They  paid  more  in  federal  taxes  in  1919 
on  their  operations  of  1918,  than  the  local  taxes  amounted  to 
this  year.  That  was  the  highest  amount  they  have  ever  paid. 
The  total  federal  taxes  last  year  amounted  to  a  little  over  six 
and  a  quarter  million  dollars.  In  1918  they  were  nearly  fifteen 
million  dollars.    Prior  to  that  they  were  nominal  only. 

MR.  E.  E.  HUNNER  (Minnesota) :  I  would  like  to  have  you 
explain  to  them  the  personal  tax  on  the  stock  pile. 

MR.  ARMSON :  The  open  pit  mines  as  a  rule  were  operated 
in  the  summer  season  jand  seasons  suitable  for  outdoor  work. 
Many   of   the   underground   mines   are   operated    all    the  year 


NATIONAL  MINE  TAX  CONFERENCE  41 

'round.  In  the  late  fall  and  during  the  winter  the  ore  taken 
from  the  underground  mine  is  put  in  a  stock  pile,  as  we  call  it, 
as  we  cannot  move  it  down  the  lakes  in  the  winter-time  and  it 
is  stock  piled. 

Ore  in  the  ground  in  the  original  deposit  is  construed  as  real 
property  with  us  while  if  it  is  severed  from  the  ground  and 
elevated  and  placed  in  the  stock  pile  it  is  regarded  as  personal 
property  and  is  taxable  as  such.  Ore  in  the  stock  pile  takes  a 
much  higher  valuation  than  ore  in  the  ground.  The  ore  in  the 
gfround,  as  I  explained,  has  applied  to  it  an  exhaustion  period, 
it  is  the  life  of  the  mine.  We  figure  that  perhaps  it  takes  30 
years  to  exhaust  the  deposits  of  a  given  range  and  we  ascertain 
the  present  value  of  the  future  worth  of  that  ore  extended  over 
those  30  years,  but  your  ore  in  the  stock  pile  is  going  to  be 
shipped  out  just  as  soon  as  navigation  opens  and  that  takes  the 
rate  of  your  present  value,  not  discounted  but  immediate  present 
value  and  that  rate  in  some  cases  will  run  up  very  high.  In  a 
few  cases  it  went  practically  as  high  as  $2  a  ton  assessed  value, 
$1.75,  $1.50  and  $1  and  down  lower,  and  is  a  very  substantial 
burden  on  winter  operations  under  ground  mining  with  us. 
The  mining  with  the  ore  in  the  ground  is  taxed  we  say  on  the 
basis  of  perhaps  28  cents  a  ton  and  I  will  say  more  when  ore 
is  piled  up  on  top  of  the  ground  and  it  remains  there  and  is 
there  on  May  first  of  the  year,  it  is  liable  to  take  a  valuation 
of  $1.50,  $1.75  or  $2  a  ton,  thus  making  the  tax  perhaps  4,  6  or 
8  times  as  high  on  the  ore  in  the  mine. 

It  has  been  represented  to  the  commission  that  that  proposi- 
tion of  law  is  rather  discouraging  winter  operations  of  mines 
and  perhaps  it  does.  You  have  probably  heard  Mr.  Hunner 
say  that  we  have  made  some  concession  this  year  and  reduced 
stock  piles  all  over  the  field  ranges  probably  25  per  cent.  That 
is,  we  took  the  market  value  less  cost  of  shipping  and  all  the 
cost  that  we  deducted  and  then  from  that  we  deducted  still 
further  25  per  cent,  of  the  value  so  we  made  some  little  con- 
cession this  year  toward  that.  It  might  encourage  the  operation 
of  some  of  those  properties  in  winter  and  we  need  it  this  year 
perhaps  as  it  has  been  a  long  time  since  we  have  had  such 
unemployment,  a  good  many  years  since  the  outlook  was  so 
gloomy  as  it  is  now  for  the  next  few  months.  I  am  not  a  pessi- 
mist, I  don't  believe  that  this  country  with  its  immense  re- 
sources, with  its  energy  and  vim  and  vision  of  its  citizenship 
is  going  to  remain  dormant  very  long.  We  are  going  to  get 
back  to  normal  conditions  shortly  but  it  is  going  to  take  a  little 
time  to  do  it  and  in  getting  back  to  normal  conditions  it  seems 
to  me  that  it  is  up  to  every  citizen,  every  corporation,  to  do  all 
they  can  to  bring  about  those  conditions  but  it  is  not  alone  up 
to  the  individual  and  the  corporation,  it  is  up  to  the  govern- 
ments both  federal  and  state,  to  reduce  those  excessive  tax 
burdens   that  property   now  is   struggling  under   and  we   can 


42        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

only  do  that  by  reducing  expenditures.  Our  little  contribution 
of  25  per  cent,  was  done  in  the  hope  that  it  might  encourage 
many  of  the  mines  to  operate  this  coming  winter  and  thus  give 
employment  to  people  that  otherwise  would  be  idle. 

MR,  J.  C.  DICK:  Do  I  understand  that  the  valuation  is  two 
hundred  some  millions  of  dollars  and  there  were  levied  upon 
that  sum  twenty  million,  or  a  little  over  10  per  cent,  of  the 
valuation?  Do  I  understand  if  a  man  owns  a  house  worth 
$1,000  he  would  have  $100  tax  to  pay? 

MR.  ARMSON:  It  wasn't  quite  10  per  cent.  The  valuation 
was  about  two  hundred  ninety-five  billion  dollars,  and  a  tax 
of  twenty  million  dollars,  it  would  be  a  little  less  than  7  per 
cent,  yet  not  on  full  value.  Of  course  that  means  only  50  per 
cent,  of  the  value  of  the  mine  so  that  your  actual  tax  at  that 
place  would  be  only  a  little  over  3  per  cent,  of  actual  value 
because  the  tax  is  levied  on  50  per  cent,  of  full  value.  The 
average  tax  rate  in  our  state  last  year  for  all  purposes,  includ- 
ing mining  properties,  was  about  fifty-six  and  a  quarter  mills. 
That  tax  was  levied  on  taxable  value  of  approximately  35  per 
cent,  of  full  value,  a  little  lower  than  one-third  of  full  value. 
Our  taxes  are  very  high  in  Minnesota.  How  are  they  in  Arizona, 
Mr.  Howe?  i 

MR.  HOWE:  I  thought,  Mr.  Armson,  that  they  were  very 
high  but  since  I  have  heard  from  Minnesota,  I  have  concluded 
that  they  are  not  so  high. 

MR.  ARMSON:  We  don't  claim  low  taxes  in  Minnesota  but 
don't  misunderstand  me,  Mr.  Howe.  The  entire  state  doesn't 
levy  taxes  like  those  mining  districts  that  I  have  enumerated. 

MR.  BARRETT  (Michigan)  :  I  would  like  to  ask  one  more 
question  about  that  stock  pile.  We  have  the  same  problem 
up  there  only  more  so  on  account  of  the  fact  that  all  of  our 
mines  are  under  ground  operations  with  the  exception  of  two. 
Now  in  handling  this  stock  pile  in  Michigan  we  determine  the 
actual  value  of  ore  in  the  ground  and  ore  in  stock  on  January 
first  at  the  same  rate,  we  treat  it  as  if  it  were  in  the  ground. 
Then,  in  the  case  of  the  stock  pile  assessment,  we  subtract  the 
value  of  the  stock  pile  as  personal  property  and  the  balance  then 
remains  upon  the  real  estate,  in  other  words,  there  is  no  dis- 
crimination between  the  ore  in  the  stock  pile  as  to  rate.  Is 
that  true  in  Minnesota? 

MR.  ARMSON:  No.  That  was  the  practice  10  years  ago 
in  Minnesota.  The  ore  in  the  stock  pile  took  the  same  rate  as 
the  ore  in  the  mine  from  which  the  stock  pile  had  been  mined. 
It  was  technically  wrong  under  the  law.  The  ore  in  the  stock 
pile  was  regarded  personal  property;  in  the  ground  it  is  real. 

We  do  the  same  in  the  matter  of  deductions,  Mr.  Barrett,  for 
instance  a  mine  that  had  a  hundred  million  tons,  if  it  had  shipped 
a  hundred  thousand  tons  this  year,  we  deduct  that  from  the 
million  and  tax  it  next  year  on  the  basis  of  $900.     We  also 


NATIONAL  MINE  TAX  CONFERENCE  43 

deduct  the  stock  pile  from  the  ore  remaining  in  the  ground  so 
that  we  don't  tax  it  twice  that  way,  except  if  the  stock  pile  re- 
mains there  for  the  second  year  it  is  taxed  twice  but  we  deduct 
the  amount  shipped  and  stock  pile  from  the  ore  in  the  ground 
and  then  tax  the  ore  in  the  ground  at  the  reduced  tonnage  and 
tax  the  stock  pile  as  personal  property  at  an  increased  value. 

MR.  D.  M.  KELLY:  Might  I  ask  a  question.  Has  your  com- 
mission any  statistics  showing  whether  a  ton  of  ore  which  would 
be  mined  say  20  or  25  years  hence  and  subjected  to  a  continuous 
tax  rate  of  3  per  cent,  would  have  any  value — any  present  value? 

MR.  ARMSON:  That  would  depend  on  the  grade  of  ore  you 
were  considering.  I  think  I  know  of  some  ores  in  Minnesota 
that  they  wouldn't  give  you  very  much  for  on  that  basis.  I 
know  of  some  other  ores  I  would  like  to  buy  on  that  basis  and 
pay  considerably  more  for  them. 

CHAIRMAN  ARMITAGE:  Your  illustration  was  a  mine  of 
30  years.  The  question  raised  itself  in  my  mind  as  to  whether 
that  ore,  if  it  were  subject  to  a  continuous  tax  rate  of  3  per 
cent,  would  have  any  value  after  30  years. 

MR.  ARMSON:   Sixty  per  cent,  anyway. 

MR.  D.  M.  KELLY:  Your  mines  in  Minnesota  were  assessed 
last  year  at  two  hundred  ninety  million,  and  paid  a  tax  of  twenty 
million.  Now  if  they  continue  to  do  that  for  30  years  or  more 
what  are  they  worth  now? 

MR.  ARMSON:  Oh,  five  hundred  ninety  odd  million  dollars 
full  value  at  the  present  measured  tonnage  of  merchantable  ores. 

MR.  D.  M.  KELLY:  If  you  pay  the  tax  of  twenty  million 
dollars  a  year  for  20  years  that  would  be  four  hundred  million 
dollars  taxes. 

MR.  ARMSON :  Probably  if  you  figure  the  tax  on  your  home 
for  20  or  30  years  and  compound  the  interest  on  it,  the  tax 
amounts  to  more  than  your  home  is  worth  at  the  end  of  several 
years.  We  must  figure  every  system.  All  property  is  supposed 
to  contribute  a  fair  share  toward  the  government. 

MR.  THACHER:   To  what  is  it  subjected? 

MR.  ARMSON:  Let  me  call  your  attention  to  another  phase 
of  that  If  our  ore  should  be  exhausted  in  30  years,  and  I  don't 
believe  it  will,  the  present  merchantable  tonnage  at  the  present 
rate  of  mining  would  perhaps  last  35  or  40  years.  We  have 
immense  tonnage  of  low  grade  and  magnetic  ores  and  probably 
will  develop  new  tonnage  of  merchantable  ores  but  at  the  end 
of  35  years,  we  will  say  at  the  average  rate  of  shipping  in  the 
last  5  years,  the  state  of  Minnesota  won't  have  any  ore.  We 
have  lost  our  wealth.  It  isn't  in  the  state,  95  to  98  per  cent, 
goes  out  of  the  state.  Now  are  we  going  to  lose  that  wealth? 
Are  we  going  to  have  it  carried  out  of  our  state,  taken  away 
forever  without  exacting  a  good,  reasonable  contribution  from 


44        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

that  property?  Many  of  those  properties  were  acquired  for  $1 
an  acre  many  years  ago.  The  surface  of  many  of  our  richest 
mines  was  originally  covered  by  timber  and  was  bought  by 
lumber  companies  without  any  supposition  that  there  was  ore 
there  at  all  and  some  of  those  lumber  men  are  living  in  Chicago, 
in  Detroit,  and  New  York.  Those  men  acquired  those  lands 
years  ago  for  a  mere  song,  they  haven't  paid  anything  for  them, 
nothing  to  speak  of.  Of  course,  some  of  the  recent  ones  were 
paid  much  more  for,  but  the  bulk  of  the  mineral  property  of 
the  state  of  Minnesota  is  owned  by  non-residents  of  the  state 
and  the  ore  is  being  shipped  out  of  the  state. 

JUDGE  STIMSON :  Where  are  you  going  to  get  your  money 
for  taxes  after  you  have  exhausted  those  mines? 

Mr.  ARMSON:  I  don't  know.  I  think  those  mining  districts 
are  proceeding  with  the  theory  of  getting  it  while  the  getting 
is  good. 

SECRETARY  KRIEGH:  What  percentage  of  the  value 
of  the  ore  produced  goes  into  the  labor  employed  in  Minne- 
sota, that  is,  to  citizens  of  the  state? 

MR.  ARMSON:  A  considerable  percentage  goes  to  the  labor, 
a  part  of  which,  however,  is  not  a  part  of  the  citizenship  of  the 
state.  A  great  many  foreigners  are  employed.  Of  course,  we 
are  trying  to  Americanize  them  up  there  and  are  succeeding  to 
some  extent  but  when  you  get  into  some  of  the  mining  districts 
you  might  feel  that  you  are  in  some  of  the  southern  countries 
of  Europe.  We  are  building  up  cities  and  producing  some 
wealth  that  way.  Of  course,  it  is  largely  a  floating  population. 
Compared  with  the  total  number  employed,  the  number  that 
own  homes  is  very  small. 

MR.  HOWE:  Under  your  system  of  assessment,  would  not 
the  amount  of  taxes  become  correspondingly  less  as  your  ton- 
nage of  ore  grew  less  until  the  end  of  the  30  years  that  you 
speak  of  as  your  tonnage  grew  less? 

MR.  ARMSON:  Yes.  We  have  properly  reached  the  very 
peak  of  valuation  now  unless  market  values  become  a  factor 
in  changing  that,  because  we  have  probably  reached  the  peak 
of  our  merchantable  tonnage.  While  we  hope  that  we  are  pfoing 
to  develop  new  tonnage  from  now  on  we  expect  a  gradual  de- 
crease in  taxable  tonnage. 

MR.  HOWE:  It  wouldn't  be  twenty  million  a  year  for  30 
years. 

MR.  ARMSON:  No.  That  was  an  excessive  levy  and  prob- 
ably wouldn't  be  that  again  for  years,  but  it  would  grow  grad- 
ually less  each  year.  We  included  in  our  last  biennial  report 
a  chapter  on  tonnage  taxes  and  net  profit  taxes,  I  think  that 
was  the  title,  in  which  we  gave  some  figures  showing  with  that 
present  rate  of  shipping  how  long  the  ore  will  continue  and 
what  the  taxes  will  amount  to  each  year  until  the  ore  becomes 


NATIONAL  MINE  TAX  CONFERENCE  45 

exhausted  on  the  ad  valorem  basis.  I  will  be  glad  to  mail  you 
copies  if  any  one  so  desires.  That  will  give  the  information 
you  want. 

CHAIRMAN  ARMITAGE :  Mr.  Armson,  I  suggest  that  any 
gentleman  here  who  wants  copies  of  that  report  leave  their 
names  with  Mr.  Kriegh,  and  he  will  communicate  with  you. 

MR.  ARMSON:  I'll  be  glad  to  furnish  copies  to  all  who 
request  them.     I  probably  have  ten  or  a  dozen  in  my  room. 

CHAIRMAN  ARMITAGE :  Mr.  Dick,  are  you  familiar  with 
the  local  tax  law  of  Utah  in  reference  to  mines?  If  so,  I  would 
ask  you  to  explain  that  to  us  briefly.  Mr.  Dick  for  many  years 
was  head  of  our  Natural  Resources  Department  of  the  federal 
government  and  made  a  specialty  of  the  study  of  federal  tax 
laws  as  applied  to  mines.  I  am  calling  upon  him  in  the  absence 
of  Mr.  Mackenzie. 

MR.  J.  C.  DICK:  In  the  question  of  valuing  mines,  the  pre- 
ceding speaker  has  given  a  very  good  idea  to  my  mind  as  to  how 
mines  should  be  valued,  if  you  want  to  get  at  the  value  of  them. 
But  the  value  of  mines  for  state  purposes  or  the  value  of  mines 
for  federal  purposes  or  the  value  of  mines  for  another  purpose 
are  three  different  things.  In  valuing  mines  for  federal  purposes 
the  valuation  is  not  the  same.  That  may  seem  strange  but  it 
is  a  fact. 

The  law  says  you  shall  not  include  any  ores  but  those  that 
.ire  definitely  known,  nothing  beyond  that  which  at  present  is 
developed  in  other  words,  while  in  their  computation  for  deple- 
tion the  law  there  says  you  shall  not  take  into  consideration  only 
the  ores  in  sight  but  the  probable  ores  and  the  prospective  ores. 

Again,  in  the  federal  law  the  value  of  your  mine  might  be 
what  you  paid  for  it,  plus  the  cost  of  development  and  prospect. 
This  development  and  prospect  worth  to  the  extent  of  a  hun- 
dred thousand  dollars  may  determine  that  the  mine  you  orig- 
inally paid  one  hundred  thousand  dollars  for  is  not  worth  30 
cents.  Its  sales  value  may  be  30  cents,  and  the  computation 
made  by  the  federal  government  is  to  the  value  of  one  hundred 
thousand  dollars.    There  is  absolutely  no  similarity  at  all. 

I  believe  that  the  valuation  of  mines  for  state  tax  purposes 
is  altogether  a  state  issue.  The  method  of  valuing  mines  in 
Michigan  or  in  Minnesota  might  not  at  all  do  in  Arizona,  Utah, 
Wyoming  or  the  West.  I  believe  that  the  valuation  of  the  mine 
when  one  goes  into  valuation  of  mines  for  tax  purposes  is  more 
of  a  tax  job  than  it  is  a  valuation  job.  The  laws  of  the  federal 
government  should  not  be  to  my  mind  such  that  they  make  or 
tend  \o  discriminate  between  taxpayers.  The  tax  should  be 
equitably  distributed  so  far  as  possible.  In  Utah  it  would  be 
absolutely  impossible  to  get  at  the  value  of  mines  by  the  method 
used  in  Michigan  and  approach  at  all  an  equitable  basis  for 
taxation.     If  the  mines  of  Utah  were  taxed  or  valued  as  the 


46        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

United  States  Government  values  mines  for  invested  capital 
purposes,  including  only  those  ores  developed,  there  would  be 
very  few  mines  paying  taxes. 

We  have  a  system  in  Utah  that  taxes  the  mines  upon  the 
basis  of  valuation  of  three  times  the  annual  proceeds.  This 
three  times  the  proceeds  was  brought  about  by  the  reason  that 
physical  property  in  general,  personal  property  in  general,  had 
been  taxed  at  about  one-third  its  total  value  and  mines  had  been 
taxed  on  their  net  proceeds.  The  legislature  concluded  to  raise 
the  value  not  one-third  but  assess  on  the  total  value  of  physical, 
personal  property.  Therefore,  to  make  it  equitable  and  not 
change  the  ratio  they  concluded  the  mines  should  be  assessed  on 
three  times.  A  great  many  mines  are  not  worth  three  times 
the  proceeds.  Just  the  other  day  before  leaving  Salt  Lake  City 
I  was  on  a  tax  case.  A  man  was  assessed  three  times  his  1919 
tax.  The  law  I  believe  came  into  effect  in  1919.  This  was  a 
dump  assessed  on  three  times  its  net  proceeds  for  1918.  The 
dump  was  worked  out,  $20,000  I  believe  was  taken  out  of  the 
dump  in  1919,  cleaning  it  up,  yet  the  tax  for  1919  was  on  three 
times  the  product  or  net  proceeds  of  1918. 

To  my  mind  the  net  proceeds  of  a  mine  is  a  fair  way  to  tax  or 
to  value  mines  upon  which  to  assess  the  tax.  You  do  not  know 
in  Utah  how  many  years  these  mines  are  going  to  run.  Some  of 
them  have  been  going  for  40  years  and  I  believe  some  of  the 
prospects  now  in  the  making  of  mines  will  be  going  for  40 
years.  When  an  engineer  goes  out  to  buy  a  mine  for  cash  he 
has  got  to  know  pretty  much  what  is  there.  He  doesn't  go 
very  strong  on  indications.  When  it  comes  to  paying  full  value 
for  the  mine  he  wants  to  know  pretty  much  the  full  value  is  there. 

It  is  a  little  hard  on  the  state  of  Utah  a  year  like  this  when 
there  are  no  net  proceeds.  The  mines  are  closed  down  pretty 
much.  I  believe  that  three  times  the  net  proceeds  is  right  and  the 
state  of  Utah  is  giving  a  great  deal  of  consideration  to  this  ques- 
tion and  I  am  not  sufficiently  versed  in  the  conditions  to  criticize 
the  action  that  the  legislature  has  taken.  Maybe  three  times 
is  pretty  near  the  value  of  the  mines  in  Utah  and  pretty  near  the 
share  of  the  tax  that  the  mine  industry  should  pay.  The  mining 
industry  of  Utah  wants  to  pay  its  full  share,  of  course.  I  be- 
lieve if  you  are  to  get  at  the  full  share  that  the  mining  industry 
should  pay,  you  should  consider  the  millions  of  money  perhaps 
that  have  been  spent  in  prospecting  and  finding  these  mines. 
In  other  words,  give  back  to  the  industry  tax  free  the  amount 
of  money  they  have  spent  in  finding  and  producing  these  mines 
upon  which  you  are  assessing  a  full  valuation. 

I  am  assuming  that  three  times  is  an  equitable  basis  of  valua- 
tion, and  if  I  were  making  a  suggestion  as  to  a  change,  I  would 
not  assess  it  on  three  times  the  net  proceeds  of  the  year  but 
on  the  average  or  three  times  the  average  of  the  three  preceding 
years.     That  would  give  the  state  an  income  in  its  lean  years 


NATIONAL  MINE  TAX  CONFERENCE  47 

and,  too,  I  wouldn't  assess  a  mine  three  times  its  net  proceeds 
or  three  times  the  average  of  the  three  preceding  years  if  the 
taxpayer  showed  me  that  he  had  but  another  year  to  live.  I 
think  that  change  should  be  made  in  the  law. 

I  haven't  got  much  sympathy  for  this  cry  of  heavy  taxation  for 
conservation,  holding  our  ore  for  posterity.  In  fact,  heavy  taxa- 
tion tends  to  the  contrary.  If  your  taxes  are  heavy,  such  as 
those  taxes  of  Minnesota  must  be,  there  is  a  great  deal  of  ore 
being  left  in  the  mines  today  that  would  be  mined  and  brought 
to  surface.  That  is  not  conservation,  it  is  waste  and  that  is 
what  the  heavy  taxation  laws  of  Michigan  and  Minnesota  are 
tending  to  do. 

I  am  sorry  I  can't  go  into  the  laws  of  Utah  in  full,  but  I  am 
not  sufficiently  acquainted  with  how  they  have  been  operating 
the  last  couple  of  years.     (Applause.) 

MR  ARMSON:  Mr.  Chairman,  I  would  like  to  express  just 
one  thought.  In  my  opinion  it  would  be  impossible  to  devise 
a  taxing  system  for  mines  that  would  suit  the  conditions  of  all 
of  the  states  of  the  union.  The  nature  of  the  ore  deposits  of 
Minnesota  are  entirely  different  from  the  nature  of  the  mineral 
deposits  of  your  western  states.  The  great  bulk  of  our  ores  can 
be  accurately  measured,  the  tonnage  can  be  accurately  deter- 
mined by  drilling.  We  are  not  guessing  at  it  as  you  have  to 
in  Utah  and  some  of  the  other  states. 

Just  the  other  day  we  had  occasion  to  place  the  Alpenna  prac- 
tically on  the  exempt  list.  A  few  years  ago  it  had  a  tonnage  of 
about  7,000,000  tons.  It  is  exhausted.  The  measurement  of  the 
tonnage  that  we  had  charged  against  that  mine  checked  out 
within  about  seventeen  and  a  half  thousand  tons. 

Now  I  don't  want  the  gentlemen  to  go  away  with  the  idea 
that  we  have  excessive  taxation.  Our  taxes  are  high,  but  on 
the  basis  of  50  per  cent,  of  value  that  the  property  is  taxed  on, 
mines  are  not  taxed  relatively  any  higher  than  farm  lands  on 
the  percentage  of  333^. 

Now  just  so  you  won't  run  away  with  the  idea  that  we  have 
been  collecting  a  tax  of  twenty  million  dollars  all  these  years, 
I  want  to  tell  you  the  year  before  all  the  tax  was  seventeen  million 
dollars.  The  year  previous  to  that  twelve  million  dollars.  In 
1916  they  were  seven  million  nine  hundred  thousand.  In  1917, 
nine  million  nine  hundred  seventy-two  thousand.  We  haven't 
been  getting  that  twenty  million  two  or  three  years. 

I  believe  that  Michigan  and  Minnesota  and  perhaps  Alabama 
and  a  few  of  those  states  can  use  about  the  same  method  of 
valuation  in  their  ore  but  our  method  wouldn't  suit  the  condi- 
tions in  Utah  or  Arizona  and  Montana,  and  your  methods 
wouldn't  suit  us.  We  can  measure  tonnage  and  we  can  deter- 
mine value  in  advance ;  you  can  do  that  in  Minnesota. 

CHAIRMAN  ARMITAGE:  May  I  ask,  Mr.  Armson,  if  you 
have  any  figures  showing  the  per  capita  cost  for  the  year  1920? 


48        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

MR.  ARMSON:    No,  I  think  not  later  than  1918. 

CHAIRMAN  ARMITAGE:    What  did  the  last  one  show? 

MR.  ARMSON:  I  haven't  it  in  mind  and  I  wouldn't  care  to 
guess  just  now.     It  was  high  enough  I  will  say. 

CHAIRMAN  ARMITAGE:  Gentlemen,  I  want  to  impress 
upon  you  the  importance  of  Mr.  Dick's  statement  that  in  his 
opinion  the  net  proceeds  method  is  the  best  method  for  taxing 
mines  for  state  purposes. 

Mr.  Dick  was  the  head  of  the  Valuation  Section  of  the  Natural 
Resources  Division  of  the  United  States  Government.  He  was 
the  firsc  man  who  really,  seriously,  intelligently  tackled  the  prob- 
lem of  valuing  all  the  mines  of  the  United  States  on  the  ad 
valorem  basis  for  the  purpose  of  determining  depletion  and  also 
invested  capital.  He  didn't  merely  value  some  mines  in  some 
localities  and  some  states  but  he  had  to  value  all  the  mines. 
He  struggled  with  that  problem  with  the  best  aid  that  he  could 
get  for  many  years  and  he  now  comes  and  tells  you,  after  that 
experience,  that  in  his  opinion  that  is  not  the  proper  way  or  the 
best  method  of  taxing  mines  for  state  purposes.  Now  just 
think  of  what  that  means.  Here  is  a  man  who  is  probably  more 
qualified  to  tell  you  the  value  of  the  ad  valorem  system  of  tax- 
ing mines  than  any  man  in  the  United  States,  who  has  had  more 
experience  with  it  in  the  practical  way  of  valuing  mines,  and  he 
tells  ycu  after  that  experience  that  in  his  opinion  it  isn't  the 
best  method  or  the  proper  method  or  the  fair  method  of  valuing 
mines  for  state  purposes.  Now  I  want  you  to  consider  just 
what  that  means  and  the  weight  to  be  given  to  that. 

MR.  ARMSON :  Mr.  Dick,  I  believe  you  said  that  three  times 
the  net  proceeds  is  the  best  method  for  state  taxation. 

MR.  DICK:    Yes. 

MR.  ARMSON:  I  have  in  mind  one  mine  in  Minnesota  hav- 
ing twenty  odd  million  tons  of  ore  in  its  deposit  that  has  not 
been  operated  since  I  have  been  on  the  commission  and  I  have 
been  serving  now  nearly  thirteen  years.  For  14  years  we  will 
say  this  mine  hasn't  been  in  operation  at  all.  How  do  you 
apply  your  rules  to  property  of  that  kind? 

MR.  DICK:  Why  should  you  get  any  tax  on  non-operating 
mines?    You  tax  it  as  surface  land. 

MR.  ARMSON:    The  surface  is  removed. 

MR.  DICK:  Then  what  are  we  discussing,  a  hole  in  the 
ground? 

MR.  ARMSON:  That  ore  is  ready  to  ship  any  time  they 
are  ready  to  put  their  shovels  in,  but  for  their  own  benefit  they 
let  it  lie  idle.  Are  we  going  to  exempt  that  property  until  they 
begin  to  operate? 

MR.  DICK:  Yes.  What  do  you  do  with  the  farmer  that 
has  got  a  thousand  acres  of  wild  land,  you  don't  tax  it? 

MR.  ARMSON:    Absolutely. 


NATIONAL  MINE  TAX  CONFERENCE  49 

MR.  DICK:  Land  is  valued  on  what  it  produces.  Five  years 
ago  we  say  that  was  wild  land  but  today  it  produces  grapes 
that  are  selling  at  $200  a  ton.  It  is  now  producing  and  it  is 
assessed  at  that  high  valuation.  Why  not  treat  the  mines  the 
same  way  and  give  the  mining  industry  this  consideration  that 
I  think  is  their  due. 

MR.  ARMSON:  I  think  this  point  is  worth  discussing  here 
because  you  made  a  statement  to  this  conference  that  we  don't 
think  applies  to  Minnesota  and  we  don't  believe  that  you  are 
justified,  or  Mr.  Dick  is  justified,  in  advocating  a  system  that 
suits  Utah  and  Arizona  and  tell  us  in  Minnesota  it  will  suit  us 
better  than  the  system  that  we  have  had  for  15  or  18  years  and 
have  investigated  just  as  carefully  as  Mr.  Dick  has  his  system. 

I  want  to  say  that  we  do  tax  the  farm  lands.  We  have  idle 
farm  lands  on  the  tax  rolls.  We  tax  all  property.  Do  you  think 
that  it  is  fair  to  permit  a  corporation,  for  its  own  future  profit, 
to  let  its  property  lie  idle  there  indefinitely  and  charge  them  no 
taxes?  Are  we  going  to  permit  them  to  carry  wealth  of  a 
great  many  million  dollars  and  derive  no  revenues  until  they 
are  ready  to  operate  it  10,  20  or  30  years  hence,  while  at  the 
same  time  we  are  taxing  your  property,  your  home,  your  wild 
land,  your  approved  land  and  all  other  property  you  have  in 
the  state?  I  submit  that  it  is  no  right.  We  have  one  corpora- 
tion (I  don't  say  this  in  an  unfriendly  spirit)  that  owns  prob- 
ably 60  per  cent,  of  the  ore  deposits  of  the  state.  They  have 
acquired  large  holdings  and  they  are  not  operating  some  of  the 
mines.  The  one  I  have  in  mind  is  not  being  operated  and 
hasn't  been  for  14  or  15  years.  Why  are  they  holding  it?  For 
their  own  profit  in  future  use. 

CHAIRMAN  ARMITAGE:  Now  it  seems  to  me  logical, 
upon  your  theory  of  taxing  mines,  that  an  idle  mine  should  be 
exempt.  As  I  understood  your  theory  of  taxing  mines  heavily, 
it  is  because  they  are  depleting  the  resources  of  the  state  and 
taking  out  of  the  state  today  the  value,  and,  therefore,  the  pro- 
portion of  that  value  before  they  take  it  out  should  be  held 
by  the  state.  Now  it  logically  follows  from  that  that  if  a  mine 
is  not  doing  that,  it  should  not  be  so  heavily  taxed  or  should  be 
exempt. 

MR.  ARMSON:  It  is  not  so  heavily  taxed,  Mr.  Chairman, 
because  if  it  is  reserve  ore  we  apply  a  lower  rate  to  it ;  we  don't 
tax  it  as  heavily  as  the  ore  that  is  being  taken  out  and  the 
mine  that  will  be  exhausted  in  the  next  few  years,  but  why  it 
should  escape  taxes  is  beyond  my  comprehension. 

MR.  DICK:  I  understood  you  to  say  it  is  held  there  by  cor- 
porations until  it  becomes  more  valuable  or  when  it  becomes 
more  valuable  the  state  will  get  a  greater  proportion  of  tax 
from  it. 

MR.  ARMSON:  You  misunderstood  me  on  that.  I  said 
until  it  became  needed.    It  may  be  that  ores  won't  be  any  more 


so        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

valuable  20  years  hence  than  they  are  today  or  they  were  a 
year  ago.  They  reached  a  pretty  high  point  a  year  ago,  but 
that  corporation  is  holding  it  for  future  needs,  that  is  all. 

MR.  DICK:  May  I  add  just  a  word  that  I  think  I  forgot?  In 
speaking  of  the  state  tax  of  Utah,  I  forgot  to  mention,  I  believe, 
that  the  mines  also  pay  a  tax  on  full  value  of  all  their  physical 
equipment  and  mills  and  stuff  of  that  sort,  also  a  valuation  upon 

CHAIRMAN  ARMITAGE:  From  Arizona  has  come  Mr. 
Charles  R.  Howe,  the  Chairman  of  the  Tax  Commission,  at  our 
invitation  extended  to  the  governor.  He  has  been  appointed  a 
delegate  to  explain  the  tax  system  for  taxing  mines  in  the  state 
of  Arizona.  I  don't  know  of  any  more  qualified  man  than  Mr. 
Howe  to  explain  that  system.  As  soon  as  Mr.  Howe  has  ex- 
plained that,  we  will  close  the  session  and  throw  it  open  for  dis- 
cussion this  afternoon. 

MR.  CHARLES  R.  HOWE:  Mr.  Chairman  and  members 
of  the  Mining  Congress:  I  have  listened  with  a  great  deal  of 
interest  to  Mr.  Armson's  discussion  of  the  Minnesota  system 
and  the  resultant  discussion  from  the  members  that  has  come 
from  it.  I  had  thought  that  our  problems  in  Arizona  were  al- 
most insurmountable  and  that  our  tax  rate  and  amount  of  taxes 
that  it  took  to  run  our  government  was  huge,  but  after  hearing 
from  some  of  the  other  states,  I  am  not  so  discouraged  in  that 
respect. 

Several  days  ago  Governor  Campbell  called  the  members  of 
the  Tax  Commission  to  his  office  and  stated  that  he  had  been 
requested  by  the  American  Congress  to  send  a  delegate  from 
Arizona  up  here.  I  asked  him  at  that  time  what  the  purpose 
was  for  sending  a  delegate  at  this  time  and  he  said  he  Vas 
unaware  with  the  exception  that  possibly  it  might  be  for  the 
purpose  of  ascertaining  our  methods  of  taxation  and  construc- 
tive criticism  thereof.  Constructive  criticism  is  always  beneficial 
to  any  taxing  body  and  the  taxing  officials  of  Arizona  welcome 
constructive  criticism. 

The  Arizona  method  of  taxation  is  predicated  on  three  things : 
First,  the  needs  of  government;  second,  the  ability  to  pay;  and, 
third,  the  wasting  asset  with  reference  to  the  future  of  the 
state. 

Now  in  explaining  the  method,  first  blank  forms  are  trans- 
mitted to  all  individuals,  companies  or  corporations  owning  pro- 
ducing mines.  These  blank  forms  I  may  say  call  for  minute 
detailed  information  relative  to  practically  everything  that  enters 
into  the  accounting  for  the  mining  company  or  corporation  that 
is  operating  the  property. 

The  Commission  has  defined  a  producing  mine  to  be  one  whose 
net  earnings,  after  all  deductions  for  extraction,  milling,  smelting, 
converting,  transportation,  as  well  as  all  taxes  and  overhead, 
including  both  local  and  eastern  office,  and  administration  taxes, 


NATIONAL  MINE  TAX  CONFERENCE  51 

are  in  excess  of  $5,000.  In  other  words,  after  all  of  these  deduc- 
tions have  been  made,  if  they  show  a  net  earning  in  excess  of 
$5,000  the  mine  is  termed  to  be  a  producing  mine,  that  is  for  the 
year  prior  to  the  first  of  January  in  which  the  assessment  and 
appraisement  is  made.  These  allowances  are  far  greater  I  note 
than  those  of  any  other  state  so  far  as  I  have  been  able  to 
ascertain. 

The  second  operation  in  our  method  is  classification.  Classi- 
fications are  then  created,  which  to  date  include  the  following: 

First,  copper  mines  whose  ore  bodies  are  found  in  advance 
and  do  not  show  evidences  of  exhaustion. 

Second,  copper  mines  whose  ore  bodies  consist  of  porphyry 
deposits  and  large  acres  of  grounds  largely  unexplored  and  un- 
developed and  do  not  show  evidences  of  exhaustion. 

Third,  copper  mines  whose  ore  bodies  consist  of  developed, 
low  grade  porphyry  deposits  and  do  not  show  evidences  of 
exhaustion. 

Fourth,  copper  mines  whose  ore  bodies  show  evidences  of 
exhaustion. 

Fifth,  gold  and  silver  mines  whose  ore  deposits  show  evi- 
dences of  exhaustion. 

Sixth,  lead,   tungsten  and  molybdenum   and  asbestos  mines. 

Seventh,  all  producing  mines  of  irregular  output. 

Eighth,  copper  mines  heretofore  known  producing  ore  of 
irregulpr  production  but  whose  present  development  indicates 
they  will  become  regular  producers. 

Then  there  are  several  subdivisions. 

Subdivision  (a)  which  shall  include  all  such  properties  as 
have  entered  the  profitable  productive  state  during  the  period 
of  years  under  consideration. 

Subdivision  (b)  which  shall  include  all  properties  that  have 
suspended  profitable  production  during  the  period  under  con- 
sideration for  reasons  other  than  market  or  physical  conditions. 

Subdivision  (c)  which  shall  include  all  such  properties  that 
have  suspended  profitable*  production  when  such  properties 
could  have  been  operated  at  a  profit  during  the  period  under 
consideration. 

Then  the  third  operation  in  the  method  is  deciding  the  factor 
of  capitalization  for  these  different  classifications  in  order  to 
ascertain  the  ad  valorem  value  of  the  property,  for  Arizona  is 
operating  solely  under  the  ad  valorem  system  of  taxation.  Our 
laws  provide  for  nothing  else  than  the  ad  valorem  system  and 
it  is  up  to  the  tax  commission  to  ascertain  what  the  value  of 
the  property  is  by  some  method. 

The  property  earnings  have  been  capitalized  over  a  period 
of  years  at  the  following  percentages:  Class  No.  1,  the  factor 
of  capitalization  is  15  per  cent;  Class  No.  2,  15  per  cent;  Class 


52        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

No.  3,  15  per  cent;  Class  No.  4,  20  per  cent;  Class  No.  5,  25 
per  cent;  Class  No.  6,  20  per  cent;  Class  No.  7,  20  per  cent; 
Class  No.  8,  30  per  cent;  Class  No.  9,  20  per  cent. 

The  next  operation  in  valuing  the  mines  is  the  different  mines 
are  assigned  to  their  proper  class.  This  is  done  after  a  care- 
ful consideration  of  everything  that  enters  into  the  assigning 
of  these  mines  to  that  class  and  all  information  possible  to 
obtain  is  obtained  by  the  commission  in  order  that  an  injustice 
may  not  be  done  in  assigning  a  mine  to  a  class,  because  if  a 
mine  v^as  assigned  to  an  improper  class,  it  would  be  valued 
possibly  at  a  greater  amount  or  a  lesser  amount  than  it  should  be. 

Fifth,  after  obtaining  the  net  earnings  for  a  period  of  5  years 
in  the  manner  outlined,  the  total  for  this  period  is  divided  by 
5  in  order  to  find  the  average  annual  net  earning.  This  net  earn- 
ing is  then  capitalized  by  using  the  factor  set  opposite  the 
particular  class  in  which  the  mine  falls.  The  figure  thus  obtained 
is  used  as  the  taxable  value  for  the  current  year  of  all  mining 
claims  or  groups  of  same  whether  producing  or  not,  if  con- 
tiguous to  producer.  Also  all  other  property  of  whatsoever 
nature  actually  used  in  producing  the  net  earnings  as  hereto- 
fore defined. 

In  other  words,  the  capitalized  value  after  having  been  found 
by  this  method  includes  all  the  property — mining  claims  and 
smelters,  mills  and  appurtenances  of  whatever  nature  used  in 
the  producing  of  the  net  of  the  several  companies. 

In  assigning  mines  to  their  respective  class  great  care  is  taken 
and  due  consideration  given  to  non-ore  bodies,  present  ore 
reserves,  whether  increased  or  decreased  since  last  appraisement, 
geological  formation  with  reference  to  probable  future  life  as 
well  as  every  bit  of  information  possible  to  obtain  as  to  the 
physical  condition  of  the  property  from  actual  inspection.  Also 
for  sake  of  comparison  a  tabulation  is  kept  of  actual  bids  for 
the  stock  wherever  quoted  at  least  twice  each  month.  While 
the  commission  has  no  knowledge  of  any  stock  actually  being 
sold  for  the  amount  bid,  it  indicates  at  least  the  willing  buyer 
if  not  the  willing  seller,  both  of  which  are  necessary  under  the 
Arizona  tax  law  in  order  to  arrive  at  the  full  cash  value  that 
the  lav/  contemplates. 

In  passing  judgment  upon  this  method  of  taxation  a  number 
of  things  should  first  be  taken  into  consideration.  First,  the 'law 
contemplates  only  the  old  general  property  tax  or  an  ad  valorem 
system  of  valuation.  Now  I  have  been  attending  our  national 
tax  meetings  for  many  years  and  at  each  of  these  meetings 
(Mr.  Armson  will  bear  me  out)  we  cuss  and  discuss  the  old 
general  property  tax  but  none  of  us  have  ever  gotten  very  far 
away  from  it.  A  few  states,  three  I  believe — Massachusetts, 
Wisconsin  and  New  York — have  enacted  so-called  income  tax 
laws  to  take  the  place  of  some  of  their  general  property  tax 
laws,  but  it  is  not  general  and  never  have  any  of  the  states 


NATIONAL  MINE  TAX  CONFERENCE  53 

been  enabled  to  get  entirely  away  from,  or  to  any  appreciable 
extent  get  away  from,  the  old  general  property  law. 

Second,  the  full  cash  value  of  all  property  must  be  the 
assessed  value  in  Arizona. 

Third,  the  courts  have  held  that  the  full  cash  value  of  a  given 
property  is  what  it  will  sell  for  as  between  a  willing  buyer  and 
a  willing  seller,  in  the  usual  manner  that  such  sales  are  made 
and  not  at  a  forced  sale. 

Now  this  applies,  of  course,  to  mines  and  to  all  property  and 
I  believe  the  mining  men  that  are  here  will  bear  me  out  in  the 
statement  that  I  make  at  this  time  that  the  tax  commission  has 
always  endeavored  and  is  getting  pretty  close  to  the  top  values 
of  all  classes  of  property  as  well  as  mining  property. 

The  fourth  thing  that  should  be  taken  into  consideration  in 
this  respect  is  that  seventy-three  per  cent  of  the  area  of  the 
state  of  Arizona  is  exempt  from  taxation  through  being  owned 
by  the  national  government,  either  as  forest  reserve  or  as 
Indian  reservation. 

Fifth,  the  state  constitution  is  wide  open  on  the  subject  of 
taxation,  the  latest  amendment  reading  as  follows:  "The 
manner,  method  and  mode  of  assessing,  equalizing  and  levying 
taxes  in  the  state  of  Arizona  shall  be  such  as  may  be  prescribed 
by  lawv"  In  answer  to  this  amendment  the  legislature  created 
a  state-tax  commission  and  delegated  to  it  extraordinary  power 
among  which  was  the  appraisement  and  assessment  of  pro- 
ducing mines. 

Sixth,  that  every  producing  mine  in  the  state,  with  one  or  two 
possible  exceptions,  have  long  ago  returned  to  their  owners  the 
total  capital  investment.  The  records  to  August  13th  show 
that  a  grand  total  of  the  dividends  paid  by  the  Arizona  mines 
to  that  time  were  $360,781,069  and  the  total  earned  surplus  as 
carried  by  the  mines  as  of  January  1st  last  was  $271,984,365. 
The  most  notable  case  in  this  respect  as  having  returned  the 
capital  investment  is  one  of  our  large  porphyry  properties,  with 
a  total  capital  investment  for  property  development  and  equip- 
ment of  slightly  more  than  fifteen  million  dollars  which  in  the 
year  1916  alone  earned,  after  all  deductions  as  shown  by  their 
annual  report  to  stockholders,  slightly  more  than  twenty-one 
million,  even  in  the  one  year  which  was  six  million  more  than 
their  total  capital  investment  for  every  purpose  of  whatsoever 
nature.  Thus  it  will  be  noted  that  the  return  of  invested  capi- 
tal is  not  so  pertinent  to  more  than  one  or  two  properties  in 
the  state  at  this  time. 

Now  with  further  respect  to  this  method  that  we  have  in 
operation  in  Arizona,  it  has  now  been  in  effect  for  some  7  years, 
but  has  never  been  tested  directly  in  our  local  courts.  How- 
ever, comparatively  recently  a  case  occurred  in  the  state  of 
Louisiana  in  which  the  state  attempted  to  assess  a  large  cor- 


54        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

poration  down  there  for  a  considerable  sum  of  money  and  the 
taxing  authorities  of  the  state  of  Louisiana  had  used  the  Ari- 
zona method.    The  courts  sustained  that  assessment. 

The  present  method  of  taxing  mines  in  Arizona  was  put  into 
effect  by  the  State  Tax  Commission  at  the  beginning  of  the 
assessing  season  of  1915  and  has,  therefore,  been  in  use  for  7 
years.  Little  complaint  was  heard  of  its  application  during  the 
first  6  years  of  its  operation,  though  the  peak  of  total  valua- 
tion was  reached  in  1919,  since  which  time  the  total  valuation 
has  been  reduced  some  seventy-two  million  dollars.  This  was 
partially  caused  by  the  fact  that  the  mines  were  making  enor- 
mous earnings  during  the  years  in  question  and  partially  for 
the  reason  that  the  mine  owners  had  labored  untiringly  with 
the  legislature  of  1915  to  have  enacted  a  law  to  value  all  mines 
at  4^  times  the  net,  plus  12j^  per  cent  of  the  gross  output  of 
each  year.  That  was  the  law  advocated  in  Arizona  by  the  mine 
owners  during  the  entire  legislative  session  of  1915  and  a  special 
session  called  later  on.  However,  it  was  not  enacted  into  law. 
It  later  developed  that  this  law,  had  it  been  enacted,  would  have 
valued  all  of  the  mines  for  at  least  the  peak  years  during  the 
war  at  considerably  more  than  the  method  used  by  the  tax  com- 
mission for  those  years,  though  when  taken  over  a  5  year  period 
the  later  method  exceeds  the  method  advocated  by  the  mine 
owners  to  some  extent.  Hence,  little  or  no  complaint  was 
made  until  the  present  year.  This  leads  one  to  believe  that 
it  is  not  so  much  the  method  used  that  is  involved  in  the  com- 
plaint at  this  time  as  it  is  the  tremendous  increase  in  all  govern- 
mental expenditures  as  shown  by  the  budgets  of  the  state  and 
all  of  its  subdivisions  which  have  increased  from  $6,823,000  in 
1915  to  slightly  more  than  seventeen  million  in  1921.  Of  this 
total  the  producing  mines  being  situated  in  counties  having  low 
tax  rates  and  having  practically  no  city  tax  to  pay  contribute  a 
little  less  than  eight  million  dollars  and  all  other  property  some- 
thing over  nine  million  dollars  of  the  total  seventeen  million 
dollars  in  taxes  raised  in  Arizona. 

The  principal  advantages  claimed  by  the  Arizona  method  is 
first,  elasticity.  This  law  that  the  mine  owners  proposed  would 
have  made  it  a  hard  and  fast  rule  to  have  all  mines,  regardless 
of  whether  they  were  gold,  silver,  copper,  or  what  not,  valued 
at  4j^  times  the  net,  plus  \2y2  per  cent  of  the  gross,  which  in 
several  instances  that  I  can  recall  would  have  caused  them  to 
suspend  operations  entirely  had  it  been  put  in  force. 

Second,  avoidance  of  peaks  and  hollows  or  fat  years  and  lean 
years.  This  is  especially  necessary  in  a  growing  state  like  Ari- 
zona whose  principal  industry  is  mining.  The  Arizona  method 
levels  off  the  peaks  and  uses  them  to  fill  in  the  hollows. 

Third,  its  equalization  of  burdens  within  the  class. 

Now  in  conclusion,  I  believe  that  Arizona  mining  men 
present  at  this  conference  will  agree  that  an  honest  effort  is 


NATIONAL  MINE  TAX  CONFERENCE  55 

always  made  by  the  tax  commission  to  arrive  at  facts  and  if  an 
error  in  administration  is  shown  to  exist,  it  is  cheerfully 
corrected. 

No  perfect  tax  law  or  method  of  appraisement  and  valuation 
has  ever  yet  found  its  place  on  the  pages  of  the  statutes  of 
any  state.  If  the  millennium  ever  comes  and  a  tax  law  satis- 
factory to  all  is  devised  by  any  man,  or  set  of  men,  I  feel  sure 
that  the  American  Mining  Congress  would  be  the  first  to  trans- 
mit a  fitting  resolution  to  the  powers  above  demanding  in  no 
uncertain  terms  that  the  reward  shall  be  a  crown  in  heaven. 

I  thank  you.     (Applause). 

CHAIRMAN  ARMITAGE:  Gentlemen,  if  it  is  your  pleasure 
we  will  adjourn  now  until  2:30.     (Adjourned  at  12:30). 


56        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 


NATIONAL  MINE  TAX  CONFERENCE 
WEDNESDAY  AFTERNOON,  OCTOBER  19,  1921 

The  Third  Session  of  the  National  Tax  Conference  convened 
at  2:45  o'clock,  Mr.  Robert  N.  Miller  presiding. 

CHAIRMAN  MILLER:  Gentlemen,  our  Chairman,  Mr. 
Armitage,  will  be  along  in  about  a  half  or  three-quarters  of  an 
hour  and  he  desires  us  to  go  ahead  and  proceed  along  the  same 
lines  we  started  this  morning  and  yesterday.  With  that  in  mind, 
we  want  to  call  on  Mr.  L..  P.  Barrett,  who  is  appointed  as  the 
official  representative  of  the  state  of  Michigan  to  speak  on  the 
tax  problems  of  that  state  in  relation,  of  course,  to  the  general 
problem  that  we  are  working  on  of  uniform  state  taxation. 

M[R.  L.  P.  BARRETT :  I  don't  know  that  it  is  necessary  to  en- 
ter into  any  description  of  the  Michigan  system,  it  is  purely  an 
ad  valorem  system.  There  is  one  thing  I  would  like  to  say 
though  in  discussing  any  method  of  taxation,  and  that  is  you 
have  to  consider  something  of  the  tax  laws  of  the  state.  The 
Michigan  constitution  provides  that  all  property  in  the  state 
should  be  assessed  at  its  full  value.  All  properties  are  supposed 
to  be  assessed  at  100  per  cent  value  and  the  courts  have  held 
principally  as  they  have  in  Minnesota  that  the  criterion  in  this 
case  is  the  sale  value  between  a  willing  purchaser  and  a  willing 
seller.  Unlike  Minnesota,  however,  there  is  no  classification  of 
property  for  purposes  of  taxation.  All  property  is  classified 
alike  and  the  method  in  use  in  Minnesota  appraisal  doesn't 
aim  to  treat  the  mines  any  differently  than  it  does  farm  property 
or  anything  else.  Under  the  provisions  of  the  Michigan  law 
the  local  assessor  is  the  officer  who  assesses  all  classes  of  prop- 
erty with  the  exception  of  railroads,  public  service  corporations. 
The  tax  commission  having  general  supervision  of  all  assess- 
ing may,  if  they  so  desire,  take  over  the  assessment  of  any 
class  of  property.  In  1911  they  elected  to  do  so  in  the  case  of 
mining  property  and  Mr.  J.  R.  Finlay  was  employed  for  this 
purpose.  He  made  a  complete  valuation  or  at  least  an  examina- 
tion of  all  classes  of  property  devoted  to  exploration  of  natural 
resources.  As  a  result  of  his  report  it  was  found  it  would  be 
inexpedient  for  the  tax  commission  to  actually  appraise  other 
than  the  iron  mining  property. 

Coal  mining  in  Michigan  is  of  very  small  importance.  Up 
until  the  last  two  or  three  years  it  has  never  paid.  It  has  been 
purely  a  bill  of  expense. 

The  copper  mines  have  been  assessed  for  a  number  of  years 
by  the  local  assessors,  the  local  assessors  in  all  cases  practically 
being  the  mining  officials  themselves  who  are  the  supervisors 
of  the  various  political  units.    They  have  established  what  they 


NATIONAL  MINE  TAX  CONFERENCE  57 

call  stock  market  method  of  appraisal,  not  a  method  which  is 
put  out  by  the  tax  commission  at  all,  it  is  purely  a  method  that 
is  operated  themselves,  in  conference  devised,  and  briefly  it  is 
this:  they  take  the  average  stock  market  quotation  of  the  shares 
of  each  of  the  companies  over  the  preceding  year.  Then  they 
classify  the  copper  mines  into  three  classes :  dividend  paying  pro- 
ducing mines,  producing  non-dividend  paying  mines  and  mines 
which  do  not  produce.  Then  with  the  average  market  value  of 
the  shares  they  determine  each  year  what  percentage  will  be 
applied  to  each  particular  class  of  property.  In  the  case  of  the 
dividend  paying  mines  in  1920,  93  per  cent  of  the  stock  market 
was  taken;  in  the  case  of  the  non-dividend  producing,  70  per 
cent,  and  in  the  case  of  the  other  properties,  other  mines  which 
do  not  produce  and  which  are  purely  prospects,  they  took,  I 
believe,  40  per  cent  (either  40  per  cent  or  50  per  cent,  I  am  not 
certain)  of  the  stock  market  quotations.  Now  the  stock  market 
quotation  is  made  by  taking  the  outstanding  shares  and  multiply- 
ing it  by  the  average  market  value.  That  then  determines  the 
assessed  valuation  for  all  property  owned  by  that  particular 
mining  company.  In  the  case  of  the  Calumet  and  Hecla,  for 
instance,  where  they  own  interests  in  subsidiary  concerns,  that 
proportion  of  value  is  then  deducted  from  the  total  calculated 
market  value  and  the  remainder  would  be  spread  upon  the 
properties  owned  by  the  mining  company.  That  also  applies  to 
land  held  which  may  be  other  than  mining  properties  and  that 
is  deducted  and  the  balance  remaining  would  be  on  the  dis- 
tributed mining  property. 

Mr.  Finlay's  appraisal  in  1911  included  the  copper  mines. 
In  1919  I  was  asked  to  make  an  appraisal  by  the  tax  commis- 
sion of  the  copper  mines  and  got  practically  the  same  results. 
Strange  as  it  may  seem,  in  1911  the  chief  criticism  of  Mr.  Fin- 
lay's  method  was  that  he  was  too  low.  Apparently  the  stock 
market  played  more  importance  in  their  eyes  than  the  actual 
valuation  of  the  mines.  This  year  there  was  a  peculiar  con- 
dition which  I  don't  think  it  is  necessary  to  discuss  here.  I 
made  a  revaluation  to  check  the  market  value  as  determined 
by  the  mining  men  themselves  with  the  same  result  again. 

The  iron  mines  have  been  reappraised  every  year  and  the 
system  in  use  is  practically  the  same  as  that  used  in  Minnesota 
in  the  general  outline.  We  differ  in  some  respects,  however, 
one  of  the  principal  points  of  difference  being  in  the  figuring 
of  the  stock  piles.  In  the  underground  mines  the  ore  is  all  sent 
to  lower  lake  ports  and  it  cannot  be  so  sent  during  the  winter 
and  it  has  to  be  stocked.  This  is  a  condition  which  arises 
purely  because  of  the  climate.  If  we  were  in  a  warm  climate, 
we  could  ship  ore  all  the  year.  Under  the  Michigan  law  per- 
sonal property  is  assessed  at  its  market  value  as  the  second 
Monday  in  April,  whatever  that  may  be. 

To  assess  stock  piles  at  their  market  value  would  result  in  a 


58        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

discrimination  against  the  iron  mining  business.  Our  method  of 
handling  it  is  this:  we  determine  the  value  of  the  ore  in  the 
ground  and  the  ore  in  the  stock  on  the  same  basis,  that  is,  the 
total  tonnage  estimated  ore  in  the  ground  and  in  the  stock  are 
added  together  on  January  1st  and  the  ore  in  the  stock  is  not 
treated  any  differently  than  the  ore  in  the  ground.  On'  the 
second  Monday  of  April  there  is  always  considerably  more  ore 
than  has  been  hoisted.  We  then  have  this  ore  in  stock  at  its 
actual  market  value  as  determined  from  the  previous  year's 
prices,  unless  there  should  be  a  special  reason  for  believing  that 
the  ore  is  worth  less  as  was  the  case  this  year.  In  order  to 
avoid  double  taxation  and  to  discriminate  between  ore  that  is 
above  ground  we  subtract  the  total  value  of  the  stock  pile  on 
the  basis  of  the  Lake  Erie  prices  and  the  balance  remaining  is 
then  arbitrarily  placed  upon  the  real  estate.  In  other  words,  if 
a  mine  had  a  million  tons  of  ore  and  the  assessed  valuation 
calculated  was  $500,000,  all  in  the  ground  and  no  ore  in  the 
stock  the  entire  value  of  the  $500,000  would  be  placed  upon  the 
real  estate.  If  there  were  a  hundred  thousand  tons  of  ore  in 
stock  and  say  that  this  was  valued  at  $1  a  ton,  the  total  value 
of  the  mine  would  remain  the  same.  It  would  be  classified  as 
real  estate  $400,000,  personal  property  $100,000. 

There  have  been  no  special  additional  taxes  placed  upon  min- 
ing in  Michigan  and  I  think  there  will  not  be.  While  there  has 
been  agitation  for  tonnage  tax  or  occupational  tax,  something 
similar  to  that  placed  in  Minnesota,  so  far  it  has  not  material- 
ized in  the  form  of  legislation. 

The  method  of  appraisal  is  simply  one  to  determine  the  value 
of  the  mine  and  determine  as  nearly  as  possible  what  we  con- 
ceived to  be  the  sales  value. 

MR.  HOWE:  Mr.  Barrett,  in  determining  the  stock  quota- 
tions, do  you  take  the  average  amount  bid  or  asked  as  the 
figure? 

MR.  BARRETT :  I  believe  it  is  the  average  bid.  That  is  done 
by  the  local  supervisors  and  I  don't  have  anything  to  do  with 
it  myself. 

MR.  ARMSON:  Mr.  Barrett,  in  your  illustration  you  gave 
a  mine  valued  at  $500,000,  and  then  if  you  have  a  stock  pile 
valued  at  $100,000  you  deduct  the  stock  pile  from  the  $500,000 
and  then  assess  the  balance  of  the  ore  in  the  ground  at  $400,000. 
You  then  have  900,000  tons  left  in  the  ground.  Originally  you 
assessed  it  at  50  cents  a  ton,  then  after  that  100,000  was  taken 
out  and  the  $100,000  deducted,  you  have  $400,000  valuation  on 
nine  hundred  thousand  tons,  or  about  forty-five  or  six  cents  a 
ton.  Either  your  ore  in  the  stock  pile  is  over-valued  or  the  ore 
in  the  ground  under-valued. 

MR.  BARRETT:    Well,  that  is  probably  true. 

MR.  ARMSON:  I  just  wanted  to  know  how  it  fits  in  the  law 
or  does  the  tax  commission  make  a  law  itself? 


NATIONAL  MINE  TAX  CONFERENCE  59 

MR.  BARRETT:  It  is  a  ruling  of  the  tax  commission  itself. 
Our  whole  idea  back  of  this  was  to  treat  all  of  that  ore  as  if  it 
were  in  the  ground,  and  this  is  purely  an  arbitrary  method  of 
handling  the  stock  pile.  It  isnt  a  method  sanctioned  by  law 
so  far  as  I  know,  but  the  tax  commission  has  quite  considerable 
powers  to  handle  a  situation  of  that  sort. 

MR.  ARMSON:  What  is  the  valuation  of  your  tax  ores  in 
Michigan. 

MR.  BARRETT:  One  hundred  and  seventeen  million  dollars. 

We  have  a  little  different  situation  in  regard  to  ore  than  you 
have.  Most  of  our  mines  in  Michigan  are  underground  mines. 
They  are  not  fully  developed  and  our  experience  has  been  that 
they  have  maintained  about  a  constant  tonnage  over  a  period 
of  the  last  10  years.  For  instance,  this  year  the  total  tonnaq^e 
estimate  was  205,000,000.  In  1911  it  was  199,000,000,  so  there 
is  a  slight  increase  in  spite  of  an  average  production  of  about 
12,000,000  tons  a  year.  In  other  words,  we  have  not  reached 
the  point  where  our  reserves  are  being  exhausted  faster  than 
they  are  being  discovered. 

MR.  WEBB:  Isn't  one  reason  that  the  reserve  stays  con- 
stant because  the  mining  companies  are  afraid  to  drill  promising 
ground  because  of  the  taxes? 

MR.  BARRETT:   That  is  probably  true  to  a  certain  extent. 

MR.  WEBB :    High  tax  may  cause  that  situation. 

MR.  BARRETT:  Under  the  Michigan  law  there  is  absolutely 
no  other  way  that  we  could  handle  that. 

MR.  DICK:  How  do  you  value  the  mine  in  prospect  that  has 
no  ore? 

MR.  BARRETT :  Surface  equipment.  There  is  no  value  given 
to  the  mine  itself.  In  the  case  of  our  Michigan  copper  mines,  for 
instance,  I  might  cite  one  like  Victoria.  It  has  been  operating 
for  15  years.  It  has  water  power,  a  mill,  and  quite  a  lot  of 
other  equipment.  It  produces,  I  guess,  about  ten  million  tons 
a  year,  but  it  has  been  producing  at  a  loss.  That  would  be 
appraised  under  our  system  purely  on  the  basis  of  its  surface 
equipment  and  the  value  of  that  water  power.  The  land  itself 
is  put  in  exactly  the  same  as  any  other  type  of  property. 

MR.  THACHER:  You  said  you  put  no  valuation  upon  it 
except  on  its  equipment.  Now  if  there  is  ore  there  that  can  be 
sold,  wouldn't  there  be  a  valuation  on  that? 

MR.  BARRETT:    It  is  operating  at  a  loss. 

MR.  THACHER:  Even  if  it  is  operating  at  a  loss,  doesn't 
it  have  a  value? 

MR.  BARRETT:  I  don't  see  where  ore  has  any  value  that 
is  operated  at  a  loss. 

MR.  THACHER:  Not  that  particular  ore,  but  now  I  think 
if  we  come  back  to  the  question  of  values  that  the  property 
must  have  a  salable  value. 


60        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

MR.  BARRETT:  The  point  is  nobody  is  able  to  determine 
what  the  sale  value  is  in  unprofitable  property. 

MR.  THACHER:  As  I  understood  it,  in  1911  when  Mr. 
Finlay  made  his  appraisement  that  was  supposed  to  be  the 
value  of  the  mine.  Isn't  it  true  that  now  you  make  an  annual 
appraisement? 

MR.  BARRETT:    Yes,  in  the  case  of  the  iron  mines. 

MR,  DICK:    How  is  the  life  of  the  mine  determined? 

MR.  BARRETT:  The  life  of  each  property  is  determined 
precisely,  I  think,  as  they  do  in  Minnesota,  by  the  tonnage  of 
ore  divided  by  the  rate  of  production  as  determined  from  ex- 
perience of  the  mine  in  the  pai<  S  years,  modified,  if  necessary, 
by  the  appraiser's  judgment  e^g  to  any  element  which  might 
tend  to  increase  or  decrease  th;%t  rate  of  production.  As  far  as 
the  application  of  that  syste«"i  goes,  it  is  purely  up  to  the 
appraisers. 

MR.  THACHER :  I  would  like  to  say  in  this  connection  that 
this  idea  of  annual  appraisement  or  estimate  appeals  to  me  very 
strongly.  If  we  stop  a  minute  to  consider  any  property  in  its 
relation  to  its  value,  it  has  a  value  at  one  time,  and  the  time  is 
the  element  there;  in  6  months  or  a  year  it  may  have  a  very 
different  value.  Now  that  is  one  of  the  reasons  I  have  opposed 
this  idea  of  taking  the  Utah  copper  or  some  other  and  saying 
that  this  valuation  is  for  25  years  ahead.  What  do  we  know 
about  25  years  ahead?  We  don't  know  anything  about  what 
it  will  be  worth. 

If  you  are  going  to  come  to  values,  I  think  you  have  got  to 
make  the  value  as  of  that  year.  We  have  that  in  the  inheri- 
tance tax  it  is  the  value  on  the  day  you  die  and  not  some 
other  month  or  year.  I  don't  see  how  it  is  possible  for  us  to 
talk  about  values  10  years  ahead  or  20  years  ahead.  We  are 
just  fooling  ourselves  on  that.  I  heard  some  time  ago  that 
Michigan  had  come  back  to  the  annual  appraisement  and  that 
seems  to  be  a  step  in  the  right  direction. 

We  are  all  confused  in  what  value  means.  We  don't  use  the 
same  terms.  We  have  ad  valorem  used  one  time  one  way  and 
another  time  some  other  term  used  for  it  and  after  all  we  have 
a  dozen  different  kinds  of  values  that  we  are  talking  about, 
and  it  is  really  a  question  of  definition.  The  government  has  a 
value  for  depletion  and  it  has  a  value  for  invested  capital  and 
a  value  for  inheritance  tax  and  a  whole  string  of  them.  Now 
we  are  injecting  into  that  a  valuation  which  comes  from  all 
these  varied  state  laws  and  one  puts  it  one  way  and  another 
another. 

I  think  to  understand  what  we  are  talking  about  we  have 
got  to  get  some  new  word  which  means  what  we  mean  by  value. 
Michigan  has  got  one  kind  of  taxation  value  and  Minnesota 
another  and  Arizona  another  and  the  government  half  a  dozen 
more  lor  its  different  uses. 


NATIONAL  MINE  TAX  CONFERENCE  61 

MR.  ARMSON:  I  rather  disagree  with  the  gentleman.  I 
think  we  all  understand  what  value  is.  The  trouble  is  the 
measure  of  value.  I  think  value  means  the  same  in  all  those 
cases — state  and  federal — but  the  measure  in  determining  the 
value  is  different. 

MR.  THACHER:  Perhaps  your  point  is  well  taken,  but  it 
is  rather  confusing  to  have  half  a  dozen  different  ones  get  up 
and  call  it  a  different  measure  of  value. 

MR.  BARRETT:  Now  I  want  to  say  this:  this  question  of 
taxation  is  a  practical  matter.  In  Michigan  the  mining  com- 
panies are  very  fair;  I  believe  they  are  as  fair-minded  men  as 
we  could  possibly  meet. 

The  question  of  taxation  in  Michigan  doesn't  involve  min- 
ing property  only,  it  involves  all  sorts  of  property.  If  I  want 
to  apply  the  earnings'  method  to  mines  and  capitalize  that,  if 
you  wish,  so  that  the  mine  only  pays  a  certain  proportion  of 
the  taxes  based  upon  its  earnings  the  previous  year,  your  manu- 
facturer, your  farmer  can  come  up  and  demand  the  same  thing. 
Now  farm  property  in  Michigan  this  year  hasn't  made  any 
money.  I  am  not  a  farmer,  but  I  have  got  a  brother  who  is  a 
farmer  and  I  know  he  hasn't  made  any  money.  There  are  a 
lot  of  farmers  in  Michigan  and  they  would  be  perfectly  justi- 
fied in  taking  the  stand  with  the  legislature  "If  you  say  that 
mining  property  can  only  be  forced  to  pay  taxes  on  the  basts 
of  the  years  when  it  actually  produces,  why  then  should  I  pay 
when  my  farm  is  a  loss?"  Now  the  farmer  has  to  pay  under 
this  system.  I  am  not  holding  any  brief  for  the  farmer,  but  I  do 
believe  that  taxation  is  a  matter  that  should  be  equitably  dis- 
tributed among  all  classes  of  people. 

MR.  THACHER:  This  question  is  complicated.  The  state 
laws  vary  so  and  you  may  have  to  change  the  constitution  in 
order  to  get  them  more  uniform  in  some  of  the  states,  but  I 
think  in  our  discussions  here  what  we  should  try  to  get  at  is 
the  main  principles  first.  Let  us  decide  those  principles  and 
then  see  how  they  can  be  applied  or  how  they  will  work  out  in 
practice. 

Now  we  have  not  only  this  confusion  about  the  word  "value" 
but  the  government  and  the  different  states  tell  us  certain 
ways  to  derive  that  value.  Now  the  one  that  has  been  forced 
on  our  attention  particularly  is  this  one  in  connection  with 
income  taxes.  In  our  mines  we  have  three  factors  to  determine 
that  really — the  ore  body,  the  cost  of  operation  and  the  selling 
price.  Now  in  regard  to  the  ore  body  you  may  be  able  to 
determme  the  tonnage  very  accurately  maybe  for  all  practical 
purposes,  but  out  of  our  30,000  mines  in  this  country  there  are 
very  few  that  approach  that.  Many  of  them  have  no  ore  in 
sight  and  there  is  nothing  to  base  that  on. 

Then  you  have  the  cost  of  operation  as  the  second  factor. 
That  depends  on  labor,  general  conditions  in  the  country,  and 


62        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

who  is  going  to  guess  what  our  cost  of  operating  any  one  of 
our  mines  is  going  to  be  5  years  from  now?  I  wouldn't  be 
willing  to  guess  and  I  don't  think  any  one  else  would. 

Then  you  have  your  third  factor,  the  selling  price.  What 
will  be  the  selling  price  of  copper  20  years  from  now?  Can 
any  one  make  a  guess  whether  it  will  be  10  cents  or  40  cents? 
I  think  we  are  buildings  these  on  entirely  artificial  things  and 
when  you  come  and  tell  us  that  a  certain  mine  is  worth  so 
much,  based  on  that  method  of  valuation,  why  we  know  as  a 
matter  of  fact  it  is  ridiculous,  it  doesn't  come  sometimes  within 
gunshot  of  what  that  mine  may  be  worth. 

I  don't  see  how  you  can  get  away  from  the  fact  that  value, 
after  all,  is  what  the  civilized  world  under  favorable  conditions 
wall  pay  for  it.  We  can  go  way  back  to  the  Supreme  Court 
decision,  and  you  remember  their  decision.  It  was  a  cardinal 
principle  which  we  should  never  forget,  that  what  property  is 
worth  for  the  purpose  of  sale  it  is  worth  for  the  purpose  of 
taxation,  and  that  is  exactly  what  they  try  to  apply  in  the 
inheritance  tax.  Now  they  have  introduced,  and  it  has  been 
supported  by  the  Supreme  Court,  that  for  the  purposes  of  taxa- 
tion they  can  have  other  kinds  of  values,  but  we  don't  want  to 
forget  that  that  is  the  right  value.  It  is  the  only  value  that 
appeals  to  me  and  when  Ave  say  the  stock  quotations  are  totally 
unreliable,  possibly  they  are,  but  if  you  buy  you  will  pay  the 
stock  quotations,  that  is  the  value  that  is  placed  on  it  at  that 
time,  and  perhaps  an  entirely  erroneous  value. 

To  Viiy  mind  that  is  very  clear  that  that  is  what  we  under- 
stand in  common  terms  as  value  and  these  others  must  have 
some  kind  of  a  name  attached  to  them  when  we  are  talking 
about  them. 

CHAIRMAN  MILLER:  We  had  hoped  to  have  here  today 
Lieut.  Governor  Thruston  Ballard  of  Kentucky.  Kentucky  is 
another  state  that  uses  a  straight  valuation  method  as  dis- 
tinguished from  a  proceeds  method  and  it  would  have  been 
interesting  to  have  heard  from  him.  Is  there  anybody  here  from 
Kentucky  who  has  had  experience  with  the  way  that  operates 
from  the  standpoint  of  the  miner  or  the  government?  (No 
response). 

As  to  New  York,  it  was  hoped  that  the  Honorable  W.  C. 
Witherbee  could  get  here  but  I  haven't  seen  him  here.  Is  there 
any  one  else  here  from  New  York  to  take  his  place?  (No 
response). 

SECRETARY  KRIEGH:  We  received  wires  that  all  of  these 
men  might  be  here  today.  They  were  not  sure  that  they  could 
get  here. 

Is  Mr.  Mackenzie  of  Utah  here?  Mr.  Mackenzie,  we  just 
called  your  name  hoping  that  you  would  be  here.  We  are 
mighty  glad  you  came  in.    We  wanted  you,  if  you  will,  to  state 


NATIONAL  MINE  TAX  CONFERENCE  63 

to  the  gentlemen  what  the  taxes  of  your  state  are,  how  they 
are  based,  and  how  they  seem  to  you  to  work. 

MR.  A.  G.  MACKENZIE  (Utah)  :  I  am  sorry,  gentlemen, 
that  I  didn't  get  in  touch  with  this  meeting  earlier,  but  due 
to  some  confusion  on  the  program  I  missed  it  entirely  this 
morning.  I  understand  Mr.  Dick  said  something  about  the 
Utah  situation  but  I  haven't  any  advantage  of  knowing  just 
what  he  said  and  what  I  say  may  perhaps  duplicate  to  some 
extent  what  Mr.  Dick  said,  but  in  any  event  it  won't  take  up 
much  of  your  time. 

Possibly  I  might  give  you  briefly  the  evolution  of  our  pres- 
ent mine  tax  laws  in  Utah.  With  the  adoption  of  the  con- 
stitution at  the  time  of  statehood,  Utah  and  several  western 
metal  and  mining  states  adopted  the  Nevada  mine  tax  code, 
which  in  general  provided  for  a  nominal  tax  on  the  surface 
ground  so  long  as  it  was  used  for  mineral  purposes,  taxation 
of  the  physical  property,  the  improvements  at  their  value  as 
other  property  and  taxation  of  the  net  mined  proceeds,  arrived 
at  by  deducting  certain  expense  items  from  the  gross. 

In  the  case  of  Utah,  at  that  time  and  for  many  years  sub- 
sequent, general  property  was  assessed  at  say  one-third  of  its 
value.  As  a  matter  of  fact,  20  per  cent  would  have  been 
nearer  the  truth.  In  the  year  1916,  through  an  act  of  the  legis- 
lature lowering  the  levy,  a  full  valuation  of  the  property  was 
made  necessary.  Following  that  and  in  consequence  of  that 
the  constitution  and  laws  of  the  state  were  amended  so  that 
at  present  all  property — physical  property — is  presumed  to  be 
assessed  at  its  full  value.  All  metal  mines  or  mining  claims, 
both  placer  and  rock  in  place,  shall  be  assessed  at  $5  per  acre, 
and  in  addition  thereto  at  a  value  based  on  a  multiple  or  sub- 
multiple  of  the  net  annual  proceeds  thereof.  All  other  mines  or 
mining  claims  and  other  valuable  mineral  deposits  including 
lands  containing  coal  or  hydrocarbons  shall  be  assessed  at  their 
full  value.  All  machinery  used  in  mining  and  all  property  and 
surface  improvements  upon  or  appurtenant  to  mines  or  min- 
ing claims,  and  the  value  of  any  surface  use  made  of  mining 
claims  or  mining  property  for  other  than  mining  purposes  shall 
be  assessed  at  full  value. 

What  I  read  there,  gentlemen,  is  a  constitution  provision. 
The  statute  follows  the  language  and  under  a  provision  pro- 
viding for  a  value  based  on  multiple  or  sub-multiple  proceeds 
the  multiple  of  the  fee  has  been  fixed  and  is  now  used. 

The  State  Board  of  Equalization  which  assesses  mining 
property  in  our  state,  except  the  surface  ground,  has  made  dili- 
gent and  fairly  successful  efforts  to  bring  other  property  up  to 
full  value.  I  think  in  the  case  of  the  public  utilities,  in  the  case 
of  city  realty  and  stocks  of  merchandise  they  have  got  pretty 
well  up  to  a  100  per  cent.    They  have  not  done  so  well  with  the 


64        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

farms  and  never  will,  but  it  is  a  fact  that  they  have  farm  values 
up  to  approximately  70  per  cent  for  value. 

Comparatively  we  are  now  in  substantially  the  same  situa- 
tion that  we  were  before  the  change  in  the  law  of  1919.  You 
may  be  interested  in  knowing  the  deductions.  They  are  given 
here  briefly.  We  have  a  better  definition  of  net  annual  pro- 
ceeds now  than  we  ever  had  before.  There  was  always  friction 
and  disputes  over  deductions.  For  illustration,  the  old  law 
never  allowed  a  deduction  of  a  general  office  expense.  We  will 
say  a  company  (and  this  is  more  or  less  characteristic  in  our 
state)  would  have  its  property,  of  course,  out  in  one  of  the 
mining  camps  and  its  general  offices  in  Salt  Lake  City,  and 
that,  by  the  way,  is  the  rule  rather  than  an  exception  in  our 
state.  Under  the  old  practice  they  would  not  permit  the  deduc- 
tion of  any  of  that  Salt  Lake  City  office  expense  which  was  a 
considerable  and  a  necessary  item  of  expense.  Under  the  new 
law  we  are  permitted  those  deductions,  and  as  you  will  note 
when  I  read  the  deductions  there  are  practical  expenses  except 
federal  taxes  and  corporate  officers,  meaning  presidents  and 
vice-presidents  and  so  on,  but  not  including  such  officers  as 
general  managers,  engineers,  general  counsel  and  so  on,  so  long 
as  they  are  residents  within  the  state. 

The  deductions  are  these : 

The  amount  of  money  actually  expended  during  the  year  for 
labor,  tools,  appliances,  supplies,  etc.,  the  actual  and  neces- 
sary office  and  expenses  and  salaries  of  employes,  other  than 
corporate  officers  within  the  state;  the  actual  cost  of  the  instal- 
lation construction,  maintenance  and  repair  of  machinery  and 
improvements  made  during  the  year;  the  actual  cost  of  reduc- 
tion transportation  and  fee  including  sampling,  as  in  smelting; 
the  amount  paid  for  state  and  local  taxes  during  the  year;  the 
amount  for  compensation  insurance. 

Briefly  those  are  the  deductions  allowed.  I  may  say  that 
we  are  reaching  a  better*  understanding  in  Utah  with  the  tax 
authorities  than  previously  existed.  We  find  the  position  on 
their  part  to  recognize  some  of  the  problems  of  our  business 
which  in  former  years  we  had  great  difficulty  in  bringing 
effectively  to  the  attention  of  the  taxing  officials,  and  on  the 
other  hand  the  members  of  the  Board  of  Equalization  tell  me 
that  they  are  finding  a  spirit  of  reciprocity,  if  you  wish  to  call 
it  that,  on  the  part  of  the  mining  men,  and  I  thiiik  I  can  say 
truthfully  that  the  relations  there  are  better  today  than  they 
have  been  at  least  for  many  years  past  in  the  state.  The  law, 
of  course,  is  not  ideal.  No  taxpayer  wjll  ever  find  a  tax  law 
that  he  regards  an  ideal  I  think,  but  they  are  fairly  satisfactory. 

CHAIRMAN  MILLER:  We  are  very  much  obliged  to  you. 
We  have  had  some  very  interesting  statements  by  gentlemen 
whose  angle  on  it  has  been  quite  different.  There  are  several 
gentlemen  here  who  look  at  it  from  the  standpoint  of  the  tax- 


NATIONAL  MINE  TAX  CONFERENCE  65 

payer's  side.  That  is  of  vital  importance  because  that  is  where 
the  money  has  got  to  come  from  in  the  first  place  and  we  want 
to  call  on  several  of  those  gentlemen  for  brief  statements  of 
what  their  observation  has  shown  as  to  the  fairest  and  best 
method  for  assessing  these  mining  taxes,  not  only  from  the 
standpoint  of  their  own  views,  but  what  they  believe  to  be  the 
mutual  standpoint.  Mr.  Frank  Webb  of  the  Republic  Iron 
and  Steel  Company  is  one  of  these  gentlemen. 

MR.  FRANK  WEBB :  Mr.  Chairman,  I  am  absolutely  unpre- 
pared to  speak  at  any  length  at  all  on  this  question.  I  just 
dropped  in,  but  we  are  operating  mines  in  Michigan,  Wiscon- 
sin and  Minnesota,  and  the  system  in  Minnesota  and  the  system 
in  Michigan  we  think  is  fair  and  equitable  and  we  think  it  works 
out  in  most  instances  very  fairly.  Our  great  trouble  in  Min- 
nesota isn't  with  the  system,  it  is  with  the  rate  of  taxes  that 
we  have  to  pay.  Now  I  suppose  perhaps  in  no  locality  are 
mining  companies  burdened  with  taxes  to  the  extent  that  we 
are  in  our  Mesaba  Range  mine.  That  is  more  or  less  true  in 
all  groups  of  mining  districts  and  that  is  largely  due  to  the 
expenditures  in  those  range  towns  and  not  the  trouble  with 
the  system  applied.  In  Michigan  this  isn't  true  to  the  extent 
of  expenditures.  We  believe  the  system  that  is  used  there  is 
worked  out  properly.  We  think  the  Michigan  system  of  apprais- 
ing stock  piles  is  much  fairer  than  the  Minnesota  system.  In 
fact,  we  think  that  we  are  being  hurt  in  Minnesota  by  this  per- 
sonal property  tax.  Now  in  Minnesota  the  law  requires  that 
personal  property  be  taxed  for  50  per  cent  of  its  true  valuation. 
This  year,  for  instance,  we  might  have  a  stock  on  a  certain 
property  on  May  1st  of  100,000  tons  of  ore  that  was  put  up 
last  winter,  due  to  local  conditions  entirely,  and  acording  to 
the  state  law  the  market  value  of  this  ore  must  be  considered, 
certain  deductions  made,  and  then  our  tax  based  on  this  rate. 
It  might  be  $1.50  a  ton  or  it  might  be  $2.00  a  ton.  We  appealed 
to  the  tax  commission  only  recently  for  some  relief  along  this 
line  that  there  should  be  a  value  placed  on  this  ore  other  than 
the  supposed  market  value  because  ore  wasn't  being  sold  at 
market  value,  it  was  sold  for  almost  anything  it  could  be  sold  for. 

Now  in  Michigan  we  believe  the  system  of  taxing  stock  piles 
is  much  more  fair  to  the  operator.  Personally,  I  would  hate  to 
see  our  system  in  either  state  change.  The  mining  companies 
I  believe  are  absolutely  honest  and  square  with  the  commissions 
in  giving  them  every  bit  of  information  that  they  have  on  the 
properties.  We  are,  of  course,  in  Minnesota  up  against  a  so- 
called  occupational  tax — in  other  words,  tonnage  tax.  It  is 
made  to  hit  the  mining  industry  only  and  it  is  a  super-tax. 
Naturally,  we  believe  this  is  a  gross  injustice  to  the  mining 
industry  and  -is  going  to  make  a  great  difference  in  the  mining 
operations  of  the  state. 

CHAIRMAN  MILLER:     Thank  you  very  much. 


66        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

We  would  like  to  hear  from  Mr.  McGrath  if  he  is  here. 

MR.  T.  O.  McGRATH:  Mr.  Chairman,  I  don't  think  I  have 
anything  further  to  add.  It  has  been  very  thoroughly  discussed 
here. 

Speaking  of  the  taxpayer,  I  think  there  are  other  taxpayers 
here  from  Arizona  who  are  paying  a  larger  share  of  the  burden 
than  the  company  I  represent.  I  think  the  system  there  of 
capitalizing  net  is  probably  as  good  as  can  be  devised,  con- 
sidering the  consensus  of  opinion  as  expressed  here  today. 
The  only  question  there  is  arriving  at  the  value  in  comparison 
with  the  values  arrived  at  on  cattle,  stocks  of  merchandise,  resi- 
dence property  and  personal  property.  In  other  words,  the 
only  thing  is  to  distribute  the  burden.  I  think  the  Utah  plan 
is  about  the  same  as  the  Arizona,  except  that  in  Arizona  they 
classify  the  mines  which  I  think  is  an  improvement  over  the 
Utah  system.  For  instance,  we  capitalize  the  net  at  three  times 
on  some  mines.  It  works  an  injustice  upon  some  mines  that 
are  of  short  life  and  I  think  in  that  respect  that  the  Afizona 
system  is  better  than  the  Utah,  but,  of  course,  the  Arizona  sys- 
tem starts  at  15  per  cent  and  raises  to  20,  25  and  33.  I  think 
that  they  have  done  their  best  in  the  matter  and  I  think  that 
probably  a  little  improvement  could  be  made  in  further  classi- 
fication and  I  think  probably  the  rates  are  a  little  high  for 
capitalization.  I  think  probably  15  per  cent  might  be  all  right 
for  certain  groups  of  mines,  but  I  think  that  larger  groups 
ought  to  go  into  20  and  others  in  25  and  33  and  I  think  some 
might  go  up  even  higher  than  that. 

To  illustrate  the  point :  when  they  assess  the  value  of  mer- 
chandise at  the  end  of  the  year  they  take  the  merchandise  on 
hand  at  cost.  Usually  the  merchant  lets  his  stock  run  down  at 
the  end  of  the  year  and  he  tries  to  carry  a  very  small  inventory 
at  the  end  of  the  year.  That  is  a  custom  of  the  business  regard- 
less of  tax  methods  and,  of  course,  it  is  to  their  interest  to  have 
a  small  stock  on  hand  at  the  end  of  the  year  and  they  probably 
make  a  further  effort  to  reduce  that  stock  towards  the  end  of 
the  year,  so  you  might  say  at  the  end  of  the  year  the  merchant 
has  a  smaller  stock  on  hand  than  at  any  time  during  the  year, 
unless  business  conditions  were  such  that  he  was  unable  to 
reduce  it,  so  you  might  say  in  some  cases  of  some  businesses 
that  the  amount  of  stock  they  had  on  hand  at  the  end  of  the 
year  in  the  ratio  to  the  net  to  the  year  would  be  equal  to  about 
60  per  cent.  Now  they  are  capitalizing  the  mines  at  15,  20,  25 
and  33.  I  am  convinced,  just  as  a  rough  estimate,  that  the  mer- 
chants are  paying  their  taxes  upon  a  basis  of  about  60  per  cent 
capitalization.  Of  course,  they  don't  pay  it  on  a  capitalization, 
you  understand,  they  pay  it  on  the  stock  on  hand,  but  taking 
the  figures  and  comparing  them  together  it  would  be  equal  to 
about  that,  so  you  might  say  the  merchant  is  getting  the  best 
of  it.     That  applies  also  in  the  cattle  industry,  cattle  on  hand 


NATIONAL  MINE  TAX  CONFERENCE  (^ 

at  the  end  of  the  year,  and  a  great  number  of  other  things,  and 
it  also  applies  to  real  estate.     In  some  counties  the  real  estate 
is  assessed   at  coal   value.     In   other   counties   where  there   is 
mining  it  is  not.     They  have  reasons  for  that.     They  say  that 
real  estate  will  not  appreciate,  it  will  depreciate,  which  is  true, 
but  still  the  people  in  those  counties  are  dependent  upon  the 
mining  interests  for  their  living  and  the  mines  are  contributing 
to  their  living  and  they  should  bear  their  proper  ratio  of  expense. 
Another  point  that  Mr.  Howe  brought  up  there  this  morn- 
ing about  depreciation  should  not  be  included  as  deduction.     I 
think  that  Mr.  Dick  was  right  in  that.    While  some  of  the  mines 
in  Arizona  have  depleted  all  their  original  investment,  a  great 
number  of  others  have  not  and  if  you  determine  the  net  of  a 
mine  without  deducting  the  investment  or  the  depletion  of  the 
investment — not  the  depletion  of  March  1,  1913,  but  the  deple- 
tion of  the  investment — some  mines  will  be  overvalued  or  will 
get  a  net  that  is  unfair  when  compared  to  other  mines.     If  pro- 
vision was  made  whereby  the  deduction  should  be  taken,  why 
those  mines  that  have  already  depleted  their  investment  would 
have   no   deduction   to   take,   while   those   mines   that   had   not 
depleted  their  investments  would  get  that  deduction,  so  between 
the  mines  themselves  it  would  equalize  a  certain  unfairness,  but 
those  are  all  blind  points  you  might  say  and  the  trouble  down 
there  as  the  trouble  in  every  other  state  is  that  this  burden  must 
be   carried   by  the   different   groups  of  industry,   by  the  cattle 
men,   by   the   merchants,   by   the  property   owners   and   by  the 
miners.     Now  the  question  is,  can  those  groups  get  together 
and  distribute  that  burden  equitably.  '  It  is  something  that  must 
be  solved  in  your  own  state.     You  cannot  solve  it  by  uniform 
laws  because  those  laws  are  made  by  representatives  and  each 
group  gets  its  representatives  up  there  just  as  strong  as  it  can. 

CHAIRMAN  MILLER:  We  would  like  to  hear  from  Mr. 
Zapffe. 

MR.  C.  ZAPFFE :  I  would  like  to  repeat  about  all  that  has 
been  said  by  Mr.  Armson  of  Minnesota  and  Mr.  Barrett  of 
Michigan  and  Mr.  Webb  and  Mr.  Hunner  this  morning  but  I 
don't  think  I  will  try  to  cover  that.  There  is  just  one  thing 
that  comes  to  my  mind  that  I  think  would  be  interesting  to  the 
gentlemen  who  have  listened  to  the  talks  today  and  that  hasnH 
been  elaborated  upon  sufficiently.  Now  it  may  be  from  what 
you  have  heard  that  you  have  conceded  a  large  discrepancy 
that  exists  between  Michigan  and  Minnesota.  In  one  way  that 
may  be  true,  but  it  is  due  to  natural  conditions  that  I  think 
will  eliminate  the  situation  in  the  course  of  time,  and  that  is 
that  while  in  Michigan  the  mines  are  paying  a  tax  of  perhaps 
20  cents  a  ton  and  in  Minnesota  at  the  present  time  they  are 
paying  a  tax  of  50  cents  a  ton  is  due  to  the  fact  that  the  tonnage 
is  so  very,  very  great,  and  that  comes  about  through  the  fact 


68        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

that  in  just  one  of  the  iron  and  ore  producing  districts  in  Min- 
nesota the  tonnage  is  so  very  large,  and  I  refer  particularly  to 
the  Mesaba  Range.  Years  ago  when  explorations  were  started 
on  the  Mesaba  Range,  it  was  soon  learned  that  it  was  possible 
to  develop  a  very  large  tonnage  with  a  small  amount  of 
exploration.  The  men  were  keen  to  develop  a  large  amount  of 
ore,  they  were  keen  to  obtain  a  large  number  of  properties. 
Mining  was  started  in  a  small  way  by  taking  out  ore  in  under- 
ground fashion  and  when  it  was  realized  that  the  tonnage  was 
so  very  extensive  and  that  the  ore  could  be  taken  out  by  cheaper 
methods,  the  open  pit  method  was  developed  and  the  ore  was 
removed  by  the  use  of  steam  shovels.  Now  one  of  the  neces- 
sary things  in  connection  with  steam  shovels  is  that  you  have 
got  to  have  lots  of  room  and  that  meant  the  removing  of  a  large 
amount  of  dirt.  With  such  a  large  quantity  of  earth  removed, 
it  was  found  that  a  large  amount  of  ore  was  on  the  property. 
When  the  time  came  to  tax  these  properties,  the  greatest  refine- 
ment was  used  in  estimating  these  tonnages  and  it  soon  de- 
veloped that  the  taxable  value  of  the  iron  and  ore  jumped  by 
leaps  and  bounds,  and  when  the  tax  commission  finally  got  to 
the  point  where  they  were  using  such  extreme  refinement  that 
they  said  in  their  own  mind  that  the  iron  and  ore  was  valued 
at  100  per  cent  valuation,  the  figures  of  course  became  enormous. 

In  Michigan  the  mines  were  prevailing  underground  mines 
and  they  were  developed  with  considerable  difficulty.  The 
explorations  were  very  expensive  as  compared  with  the  explora- 
tions in  the  Mesaba  district,  so  after  a  certain  small  amount  of 
ore  was  discovered,  enough  to  justify  gambling  to  the  extent 
that  you  would  sink  a  shaft  and  operate,  the  explorations  ceased. 

Now  that  all  condensed  in  a  few  words  means  that  on  the 
Mesaba  Range  the  total  amount  of  reserves  so  far  as  exceeds 
the  requirements  for  successful  operation  as  compared  with 
Michigan  are  very  small,  just  enough  to  keep  you  going  one 
might  say,  so  we  have,  in  fact,  a  situation  in  Minnesota  that 
we  have  more  ore  than  we  really  need,  more  than  we  know  what 
to  do  with.  However,  when  the  tax  commission  reached  the 
point  where  properties  were  valued  to  their  fullest  extent,  the 
mining  companies  in  analyzing  the  situation  got  to  realizing 
that  they  had  made  a  mistake  in  trying  to  develop  so  very  much 
ore  and  the  last  4  or  5  years  has  brought  about  a  situation  that 
explorations  have  been  practically  brought  down  to "  nothing 
excepting  the  few  instances  where  reserves  have  to  be  developed. 

A  few  years  ago  the  total  amount  of  ore  reserves  in  Minne- 
sota was  roughly  1,500,000,000  tons.  Today  it  is  about 
1,300,000,000  tons  and  that  figure  in  my  opinion  will  continue  to 
decline  for  a  certain  number  of  years.  Now  many  have  taken 
the  position  that  the  ore  is  playing  out  in  Minnesota  and  very 
recent  statements  have  been  made  that  probably  ought  never 


NATIONAL  MINE  TAX  CONFERENCE  69 

to  have  been  made  that  the  merchantable  ore  in  Minnesota  will 
be  gone  in  about  15  years.  In  my  opinion  that  is  not  true. 
Just  as  soon  as  more  reserves  are  necessary  explorations  will 
be  resumed  and  more  ore  will  be  found.  There  isn't  any  doubt 
in  my  mind  at  all  that  there  is  a  great  deal  more  ore  in  Minne- 
sota than  it  is  possible  to  estimate  at  the  present  time.  Of 
course  that  property  cannot  be  put  on  the  tax  roll  until  the  ore 
is  known  to  exist.  Now  certain  poHtical  organizations  in  the 
state  of  Minnesota  have  played  up  this  fact  to  considerable 
advantage,  have  ridiculed  the  tax  commission  many  a  time 
and  have  made  it  appear  that  the  tax  commission  is  playing  in 
the  hands  of  the  mining  companies  because  we  will  say  in  1914 
the  tax  commission  reported  1,400,000,000  tons  and  we  will  say 
10  years  ago  it  reported  perhaps  half  that  quantity.  They  say, 
"Why  that  ore  has  been  here  all  this  time  and  the  tax  commis- 
sion hasn't  put  it  on  the  tax  roll."  Nobody  knew  that  wealth 
existed  because  it  hadn't  been  developed,  but  just  as  soon  as  this 
total  reserve  of  1,300,000,000  is  cut  down  to  where  we  get  the 
proper  balance  between  what  is  necessary  for  mining,  the  re- 
serves will  begin  to  keep  pace  with  the  amount  of  ore  that  is 
extracted  every  year  and  instead  of  the  jron  and  ore  being 
depleted  in  the  mines  in  the  next  15  years,  the  probabilities  are 
they  are  going  to  keep  on  taking  ore  out  of  mines  for  100  years. 
At  the  same  time  new  material  is  going  to  be  made  commer- 
cial which  today  is  absolutely  non-merchantable.  The  methods 
of  improving  ore  are  increasing  so  rapidly  that  material  con- 
tainmg  35  per  cent  or  40  per  cent  of  iron  in  some  form  or  other 
in  these  ores  will  eventually  be  beneficiated  in  such  a  way  that 
the  ore  will  have  a  content  not  only  equal  to  what  our  commer- 
cial ores  contain  today  but  even  a  better  content. 

■  Another  point  I  want  to  speak  about  briefly  is  a  matter  that 
was  brought  up  by  Mr.  Armson  this  morning  with  reference  to 
the  deposits  of  ore  containing  20,000,000  tons  which  was  stripped 
and  made  ready  for  mining  and  was  never  mined,  but  it  is  being 
taxed  today  at  a  high  rate,  as  some  of  you  men  thought  here 
today,  although  it  was  put  in  the  reserves  class — by  that  I  mean 
not  in  the  active  class.  One  reason  I  want  to  speak  about  that 
is  Mr.  Armson  made  reference  in  his  remarks  to  the  fact  that 
this  certain  large  corporation  was  interested  in  the  property  and 
didn't  want  to  have  it  appear  that  the  tax  commission  was  at  all 
trying  to  lambast  the  large  corporations.  That  is  very  true.  I 
am  employed  by  a  corporation  which  has  a  very  large  organiza- 
tion. We  mine  in  the  state  of  Washington ;  we  are  the  biggest 
coal  miners  in  the  state  of  Washington;  we  are  the  second  big- 
gest in  the  state  of  Montana;  we  mine  ore  in  Minnesota  and  we 
have  some  properties  on  the  Mesaba  Range,  and  I  am  satisfied 
that  the  tax  commission  of  Minnesota  is  not  selecting  the  cor- 


70        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

porations  or  the  mining  companies  with  any  idea  of  being  unfair 
to  them. 

Now  in  this  instance  the  corporation  referred  to  is  the  United 
States  Steel  Corporation  and  its  subsidiary  company  which 
operates  iron  mines  in  Minnesota  is  the  Oliver  Iron  Mining 
Company.  Years  ago  this  company  acquired  many,  many 
properties  and  the  general  tendency  was  very  much  then  as  it 
is  today  not  to  buying  property  but  to  lease  it.  Settlers,  home- 
steaders, timber  workers  and  men  of  that  kind  were  the  men 
that  were  acquiring  the  properties  and  then  later  on  leasing 
them  to  the  larger  mining  companies.  In  the  early  days  then  the 
steel  corporation  had  acquired  some  by  purchase  but  the  largest 
part  of  this  property  was  acquired  by  lease.  Two  years  ago  the 
Oliver  Iron  Mining  Company  realized  that  the  tonnage  that  it 
had  on  its  leased  properties  was  so  great,  that  the  period  allowed 
for  extracting  these  ores  under  the  terms  of  the  lease  was 
gradually  getting  so  short  that  it  would  be  impossible  for  that 
corporation  to  take  out  all  the  ore  to  which  it  was  entitled 
under  those  leases  and  the  result  was  that  it  adopted  the  policy 
of  not  operating  the  properties  which  it  owned  and  instead 
concentrated  on  its  efforts  in  extracting  the  ore  on  these  proper- 
ties which  it  leased. 

Up  to  that  time  the  corporation  had  proceeded  to  strip  this 
property  with  the  large  tonnage  and  then  expose  this  ore  deposit 
so  it  is  absolutely  exposed  to  view  and  there  isn't  any  question 
about  the  tonnage  there.  Right  then  and  there,  in  spite  of  the 
fact  that  they  invested  a  large  amount  of  money  in  stripping 
the  properties,  it  discontinued  its  operation,  but  there  is  that 
large  deposit  which  is  there  being  taxed  in  the  reserve  list. 

I  merely  mention  that  so  you  will  not  gain  the  impression  that 
the  corporations  are  being  discriminated  against  by  the  tax 
commission. 

I  think  as  a  whole  we  feel  we  are  getting  pretty  good  treatment 
under  the  ad  valorem  system.  I  think  it  is  a  good  method  to  use  in 
evaluating  our  iron  and  ore  properties  for  taxation  purposes.  A 
few  little  things  come  up,  of  course,  that  aggravate  the  situation. 
One  thing  we  dislike,  is  the  necessity  of  having  our  stock  piles 
taxed  with  personal  property.  That  is  just  simply  a  matter  of 
fate,  a  condition  of  climate.  The  ore  is  piled  in  the  winter-time 
not  only  to  keep  your  organization  intact,  but  to  keep  employment 
for  the  married  men,  keep  their  families  going  and  keep  the  com- 
munities that  are  necessary  around  mines  in  good  condition.  Of 
course,  with  an  open  pit  operation  the  sediment  disappears  and 
when  the  cold  weather  sets  in  everything  ceases,  no  work  is  done 
at  all  until  the  ice  thaws  out  in  the  lakes,  and  then  the  work  is 
resumed,  but  in  the  meantime  we  stock  pile  this  ore  and  we  can't 
possibly  get  it  out  of  the  way  by  the  first  of  May.  If  the  period  for 
assessment  was  the  first  of  June,  we  could  probably  beat  the  game 


NATIONAL  MINE  TAX  CONFERENCE  71 

and  there  is  no  doubt  at  all  but  what  the  mining  companies  would 
make  an  effort  to  beat  that  game  just  the  same  as  the  merchant 
will  let  his  stock  run  down  in  order  that  his  stock  would  not  be  the 
average  of  his  stock  during  the  year. 

Our  fight  in  Minnesota  has  largely  been  with  the  legislature. 
There  has  always  been  an  attempt  there  to  saddle  extra  tax  burdens 
on  iron  ore.  The  mining  companies  have  never  attempted  to  pro- 
vide any  bill  or  legislation  but  have  always  combated  whatever 
legislation  has  been  presented.  The  result  was  that  a  few  years  ago 
property  was  classified  and  a  bill  was  passed  that  put  the  iron  ore 
in  class  one  and  thereby  it  is  valued  at  fifty  per  cent  of  its  full  and 
true  value.  The  last  thing  that  happened  was  during  the  last  ses- 
sion of  the  legislature  the  occupational  bill  was  passed.  There  prob- 
ably wouldn't  have  been  such  a  severe  fight  against  that  bill  if  it 
was  not  for  the  mere  fact  that  the  only  occupation  against  which 
the  bill  was  directed  was  the  occupation  of  mining. 

Mr.  George  E.  Holmes  took  the  Chair. 

CHAIRMAN  HOLMES :  I  am  sure  we  appreciate  Mr.  Zapffe's 
remarks.  One  or  two  points  occurred  to  me  in  the  course  of  his 
remarks  and  in  the  course  of  the  remarks  of  Mr.  Armson  this 
morning  which  I  didn't  have  occasion  to  voice,  with  respect  to  the 
ore  which  has  been  stripped  but  not  mined  and  which  is  taxed  a 
heavy  rate.  I  should  think  it  would  be  for  the  benefit  of  the  state  of 
Minnesota  not  to  tax  it  at  the  present  time  to  prevent  this  era  of 
extravagance  in  the  villages,  and  tax  it  at  a  higher  rate  when  it  is 
extracted  at  some  future  time.  And  with  respect  to  the  stock  piles, 
I  don't  see  those  economical  means  of  value,  time  and  place  value 
ought  not  to  considerably  reduce  the  value  of  stock  piles  below 
the  market  price  that  might  be  received  the  following  spring  if  the 
ore  can  be  sold  at  that  time.  Those,  however,  are  merely  observa- 
tions of  one  who  has  very  little  knowledge  of  the  practical  opera- 
tion of  mine  laws. 

The  meeting  is  now  open  for  discussion  by  the  members  who 
may  wish  to  comment  upon  the  disorderly  situation  of  our  tax 
laws.  We  will  no  doubt  some  time  reach  a  situation  where  those 
laws  are  more  scientific  and  more  equitable  and  more  flexible  than 
they  are  today.  One  great  objection  to  all  our  tax  statutes  is  that 
they  are  usually  inflexible  or  the  constitutions  are  inflexible.  They 
can't  cover  special  cases.  A  good  deal  of  the  complaint  against  tax 
laws  arises  from  the  taxpayer  who  has  a  special  case. 

I  think  it  may  be  conceded  that  it  is  desirable  that  the  taxpayers 
regard  the  tax  officials  as  honest  men,  as  Major  Miller  said  yester- 
day, and  that  the  tax  ofificials  regard  the  taxpayers  as  honest  men 
as  Judge  Stimson  remarked  later  on.  No  doubt,  and  without  ques- 
tion that  is  the  attitude  between  tax-payers  and  tax  officials  and 
the  friction,  if  any,  that  does  arise  is  due  to  some  inflexible  pro- 
vision of  the  statute  or  some  set  practice  or  perhaps  some  fault  in 
the  underlying  principles  along  which  our  taxing  statutes  are  based. 


72        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

We  have  gotten  a  great  deal  of  valuable  information  in  the  meet- 
ings at  this  session  of  the  Congress  but  only  a  small  portion  of  the 
information  that  a  body  such  as  this  Congress  should  have  in  order 
to  advise  or  discuss  or  reason  together  for  the  purpose  of  improv- 
ing our  taxing  system. 

I  think  this  is  an  opportune  moment  for  any  one  who  wishes  to 
express  his  views  on  any  particular  statute  or  on  the  mining  tax 
statutes  in  general  to  step  to  the  front  and  address  the  audience. 
There  are  several  gentlemen  here  that  we  haven't  heard  from  and 
I  am  sure  they  have  some  valuable  contribution  to  make. 

MR.  KELLY:  With  reference  to  the  hardship  that  follows  a 
reason  of  inflexible  statutes  and  constitutional  provisions,  I  don't 
know  just  what  the  Chairman  has  in  mind  but  to  my  mind  the  pro- 
tection of  the  taxpayer  is  guaranteed  by  an  inflexible  statute  that 
gives  him  the  same  right  and  the  same  yardstick  and  the  same 
measure  that  the  other  fellow  has,  and  it  is  my  judgment  that  there 
is  too  much  tendency  at  this  time  in  some  of  the  states  at  least  to 
make  what  they  seek  to  term  flexible  statutes  that  may  mean  a 
different  thing  or  may  be  applied  in  a  different  manner  or  different 
method  according  to  the  attitude  of  the  taxing  of  property,  and  it 
is  my  judgment  that  the  taxpayers'  rights  are  better  protected  by 
constitutional  provisions  that  are  inflexible  and  furnish  the  same 
yard  stick  for  everybody. 

CHAIRMAN  HOLMES:  I  think  Mr.  Kelly's  remarks  are 
very  much  to  the  point.  What  I  had  in  mind  was  rather  some 
degree  of  flexibility  in  the  administration  of  a  tax  law  that 
might  be  inflexible  as  to  its  limits  but  there  has  been  a  great 
deal  of  discussion  on  this  subject  of  stock  bills  in  Minnesota 
which  I  think  even  the  Minnesota  Tax  Commission  regards  as 
being  a  rather  unjust  imposition  or  at  least  indicates  that,  since 
it  has  arbitrarily  reduced  the  value  of  stock  bills  twenty-five 
per  cent  below  what  might  be  called  their  present  cash  value. 

I  see  our  friend  Mr.  Fernald  has  just  stepped  in.  I  wish  to 
advise  him  that  now  is  the  time  to  speak  or  forever  hold  his 
peace.  The  meeting  is  open  to  a  general  discussion  of  our  tax 
problems. 

MR.  H.  B.  FERNALD:  I  must  apologize  for  not  having  been 
around  earlier  but  I  had  a  few  little  real  problems  that  came  up 
for  consideration  so  as  a  matter  of  theory  and  principle  I  gave 
place  a  little  while  to  them.  It  haven't  had  the  opportunity  to 
hear  what  has  been  said  this  afternoon  but  I  have  been  very 
much  impressed  with  what  was  said  in  the  discussion  yesterday 
and  today  in  regard  to  the  situation. 

When  I  came  on  here  I  was  expecting  to  hear  what  was  the  atti- 
tude of  the  various  commissions  and  the  various  representatives  in 
this  matter  of  state  taxation  and  we  seem  to  be  in  a  pretty  general 
agreement  that  the  mines  must  stand  a  very  large  amount  of  taxa- 
tion in  those  states  where  they  represent  a  large  part  of  the  state 


NATIONAL  MINE  TAX  CONFERENCE  73 

wealth,  and  they  must  expect  to  bear  their  fair  burden  of  taxation. 
On  the  other  hand,  there  seems  to  be  a  general  disposition  on  the 
part  of  the  state  commissions  that  have  been  represented  here  to 
arrive  fairly  and  consistently  at  a  basis  of  what  the  mines  should 
bear  and  what  they  can  bear  without  detriment  to  the  industry 
and  that  the  idea  is  not  to  penalize,  not  to  injure,  not  to  oppress 
any  part  of  the  state  industry,  whether  it  be  mines  or  otherwise. 
I  think  we  are  all  looking  for  the  way  in  which  it  can  be  worked 
out  along  that  line.  It  seems  to  me  that  we  must  look  for  that 
solution  state  by  state  for  the  time  being  at  least,  until  we  can 
arrive  at  some  more  general  standard  scheme  of  state  revenue 
finance  than  we  have  at  present  or  than  we  seem  to  have  any  hope 
of  getting  for  a  great  many  years  to  come.  I  think  if  we  can  just 
have  the  same  spirit  of  cooperation  to  solve  the  mutual  problems 
that  we  seem  to  have  here  today,  and  if  we  can  all  work  on  this 
matter  of  state  expenditures,  recognizing  the  bottom  of  the  whole 
tax  question  is  this  matter  of  how  much  money  is  to  be  spent  by 
the  government,  we  will  get  our  real  solution. 

I  think  we  were  all  amazed  at  some  of  these  figures  that  were 
given  as  to  what  some  of  these  government  budgets  have  run  to. 
Five  hundred  dollars  per  capita  is  simply  an  impossible  load.  We 
can't  run  to  that.  Whether  it  comes  from  one  system  of  taxation 
or  another,  it  is  too  much.  We  are  met  with  these  demands  in  the 
states  for  all  kinds  of  new  expenditures,  extension  of  activities, 
that  cannot  be  met  out  of  present  funds  and  I  think  we  must  agree 
that  they  cannot  be  met  at  all  without  passing  the  danger  point  in 
the  taxation,  that  danger  point  being  the  point  at  which  taxes  will 
become  such  a  burden  on  industry  that  prosperity  in  the  state  is 
going  to  be  injured. 

Those  are  the  principal  thoughts  that  I  have  in  my  mind 
on  this  general  question  and  I  think  it  can  be  followed  through  and 
be  given  much  more  study  to  advantage  and  the  tax  committee 
of  the  Congress  can  do  very  excellent  work  on  this  matter.  Per- 
haps this  period  of  15  or  20  years  brings  us  to  a  point  where  we 
have  worked  out  this  ideal  system  of  taxation  for  mines  as 
well  as  all  the  other  industries  of  the  country. 

CHAIRMAN  HOLMES:  By  that  time  all  the  old  reserves  of 
Minnesota  will  be  gone. 

Is  there  any  further  discussion  on  this  point  of  state  taxation? 

MR.  A.  G.  MACKENZIE:  I  might  say,  to  complete  the 
information  that  we  have  pending  now^,  to  be  voted  upon  next 
fall,  a  constitutional  amendment  providing  for  full  classification 
of  property  and  a  graduated  income  tax  but  expressly  exempt- 
ing mines  from  classification.  There  seems  to  be  a  disposition 
in  our  state  not  to  classify  mining  property.  This  exemption 
was  not  certified  by  the  legislature.  The  amendment  was  killed 
twice  in  the  House  and  once  in  the  Senate  and  finally  they  put 
in  this  exemption  I  referred  to  and  took  it  up  and  put  it  in  the 


74        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

Senate  and  put  it  through.  It  may  sound  as  funny  when  I  say 
it  was  killed  three  times  and  then  passed,  but  what  I  mean  is 
that  it  was  practically  killed  in  different  forms.  It  will  be  voted 
upon  next  fall.  Of  course  I  can't  predict  whether  it  will  be 
adopted  or  not.  It  may  or  it  may  not  be.  The  people,  of  course, 
vote  upon  constitutional  amendments. 

CHAIRMAN  HOLMES:  Do  you  consider  it  a  desirable 
change? 

MR.  MACKENZIE:  I  am  not  answering  too  rapidly  on  that. 
I  am  hesitating  for  the  reason  that  I  am  not  sure  that  state 
income  taxes  are  a  good  thing  as  long  as  the  federal  government 
uses  that  means.  My  personal  opinion  is  that  the  state  should 
keep  out  of  that  field  for  some  time  at  least.  I  don't  believe  in 
the  classified  property  tax.  Perhaps  I  am  not  a  hundred  per  cent, 
disciple,  but  generally  speaking  I  am  not  in  favor  of  that.  I 
think  there  is  justification  for  certain  forms  of  classification  but 
you  understand  that  this  does  not  affect  our  property.  The  leg- 
islature seemed  to  be  very  much  resolved  itself  on  that  question. 
This  exemption  was  put  in  after  the  measure  had  failed  three 
times  and  it  then  passed. 

MR.  ARMSON:  I  might  .say  as  a  matter  of  information  that 
in  Minnesota  at  the  next  election  we  will  vote  on  a  constitutional 
amendment,  in  effect  writing  our  new  law  into  the  constitution. 
There  is  grave  doubt  in  the  minds  of  some  attorneys  as  to 
whether  the  so-called  "Occupational  Tax  Law,"  imposing  a 
tax  of  6  per  cent,  on  the  value  of  the  product  of  those  engaged 
in  mining,  is  constitutional.  It  was  said  this  morning  that  we 
fully  expect  a  fight  up  to  the  United  States  Supreme  Court. 

Now  the  majority  of  the  legislature,  anticipating  the  possi- 
bility of  the  law  being  held  unconstitutional,  put  through  a  bill 
providing  for  a  constitutional  amendment  writing  into  the  con- 
stitution a  provision  permitting  the  levy  of  an  occupational  tax 
on  mining  in  the  state.  WHether  it  will  be  adopted  at  the  next 
election  or  not  I  don't  know.  Under  pur  constitution,  it  requires 
a  majority  of  all  votes  cast  at  the  election  to  adopt  an  amend- 
ment, not  merely  the  majority  of  those  voting  on  the  question 
but  all  votes  cast  at  the  election.  I  might  say  that  as  far  as  the 
occupation  tax  is  concerned,  it  is  not  approved  or  endorsed  by 
a  majority  of  tax  commissioners.  The  commission  perhaps  be- 
lieves that  iron  and  ore,  because  of  its  peculiar  nature,  because 
it  is  diminishing,  that  it  does  not  reproduce  itself,  that  when  it 
is  taken  out  it  is  gone  forever  and  eventually  we  will  have 
nothing  left  but  holes  in  the  ground,  should  bear  relatively 
heavier  taxes  than  other  forms  of  property  but  we  believe  the 
state  should  impose  that  supertax  in  one  system.  We  don't 
believe  the  state  is  justified  in  imposing  two  different  kinds  of 
taxes  on  the  same  property.  For  that  reason,  the  commission, 
or  the  majority  of  the  commission,  was  opposed  to  the  occupa- 


NATIONAL  MINE  TAX  CONFERENCE  75 

tion  tax,  but  Mr.  Mackenzie,  referring  to  the  constitution  in 
Utah,  brought  to  my  mind  the  fact  that  we  are  going  to  vote 
in  my  judgment  for  a  constitutional  amendment.  I  quite  agree 
with  Mr.  Kelly  that  I  believe  tax  laws  should  be  clear  and 
definite  in  their  terms  and  not  left  to  individual  caprice  or  whim. 
The  matter  of  valuation  is  a  question  of  judgment,  of  course, 
but  the  law  should  be  definite  and  specific  and  the  taxpayer,  as 
Mr.  Kelly  said,  is  much  better  protected  by  a  definite  law  than 
a  law  that  is  left  to  the  judgment  of  the  taxing  officials.  But 
at  the  same  time  I  don't  believe  in  writing  statutory  laws  in  the 
constitution  of  the  state.  I  believe  that  you  can  trust  as  a  general 
rule  to  the  wisdom  and  judgment  of  the  legislature  to  enact  laws 
to  meet  conditions  as  they  arise  from  time  to  time.  In  our  case 
where  we  require  a  majority  vote  to  amend  our  constitution,  if 
we  write  what  properly  is  a  statutory  law  in  the  constitution  and 
conditions  change  in  two  or  three  or  five  years,  we  can  amend 
that  without  going  back  to  the  people  to  get  an  amendment  to  our 
constitution,  so  I  don'i  believe  in  writing  statutory  laws  into  the 
constitution. 

CHAIRMAN  HOLMES :  Are  there  any  further  remarks  on  this 
subject?  The  secretary  of  this  meeting  has  requested  me  to  state 
to  the  members  briefly  the  recent  developments  in  Federal  Income 
and  Excess  Profits  Taxation  so  far  as  that  affects  the  mining  in- 
dustry. I  have  in  my  hand  a  copy  of  the  Revenue  Act  of  1921, 
which  may  become  a  law  in  30,  60  or  90  days,  depending  upon  how 
bitter  the  opposition  to  the  Administration  Bill  develops  to  be.  At 
the  present  time  the  Senate  has  agreed  to  a  number  of  so-called 
compromises  and  amendments,  some  77  of  them,  and  the  leaders 
of  the  House  have  announced  their  intention  to  fight  these  amend- 
ments and  insist  upon  some  of  the  original  provisions  of  the  House 
Bill,  particularly  in  provisions  reducing  surtaxes  to  a  maximum  of 
32  per  cent. 

It  is  very  unlikely,  therefore,  that  this  bill  will  become  a  law 
before  the  end  of  November,  possibly  the  end  of  December,  and 
possibly  we  will  have  a  law  again  passed  in  January  to  apply  retro- 
actively to  the  preceding  calendar  year.  This  bill  does  not  make 
any  material  change  in  so  far  as  the  law  affects  the  wasting  in- 
dustries. 

The  provision  for  depletion  is  retained  with  a  slight  and  very 
reasonable  modification  in  the  case  of  depletion  based  on  discovery 
values,  that  modification  being  to  the  effect  that  the  allowance  for 
depletion  based  on  discovery  value  shall  not  exceed  the  income  from 
the  particular  property  discovered,  unless  the  income  from  the  par- 
ticular property  discovered  is  not  sufficient  to  cover  depletion  based 
on  cost  or  on  the  value  as  of  March  1,  1913.  I  think  Mr.  Thacher 
was  perfectly  right  in  saying  a  little  earlier  this  afternoon  that  we 
do  have  several  kinds  of  valuation  and  it  is  more  than  merely  a 
measure  of  valuation,  it  is  valuation  of  very  different  times  and 


76        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

under  very  different  conditions.  For  state  tax  purposes,  of  course, 
we  speak  of  current  values,  valuation  on  the  assessment  today. 
For  the  capital  stock  tax,  invested  capital  under  the  federal  law, 
we  speak  of  value,  meaning  the  actual  cost  to  the  taxpayer,  which 
might  be  $15,000  for  a  property  now  worth  a  million.  For  deple- 
tion it  may  be  that  very  same  $15,000  or  it  may  be  a  valuation  of 
his  property  on  March  1,  1913,  a  peculiar  temporary  provision  due 
to  our  federal  constitution,  or  it  may  be  his  value  30  days  after 
discovery  and  special  inducement  granted  to  the  prospector  or 
wild-catter  to  go  ahead  with  the  new  natural  resources  during  our 
period  of  high  taxation  so  that  we  have  more  than  a  mere  difference 
in  the  measuer  of  value.  It  is  a  real  difference  in  value.  It  is  a 
difference  as  to  point  of  time  and  the  value  on  which  state  taxes 
may  be  assessed,  not  the  value  in  point  of  time  on  which  invested 
capital  is  based  or  upon  which  depletion  may  be  based. 

As  I  said,  the  depletion  clause  is  not  materially  changed,  it  has 
this  one  limitation  and  no  one  can  quarrel  with  that.  The  excess 
profits  tax  is  proposed  to  be  re-enacted  for  the  year  of  1921  prac- 
tically without  change.  Gold  mining  companies  are  exempt  from 
this,  as  they  were  under  the  revenue  act  of  1918,  and  in  the  case 
of  the  sale  of  mines,  the  same  limitation  on  the  tax,  namely,  20 
per  cent,  of  the  selling  price,  is  contained  in  this  law.  The  limita- 
tion in  the  case  of  the  sale  of  mines  by  individuals  is  also  retained 
in  that  portion  of  the  income  tax  law  relating  to  surtaxes,  the  limit 
being  20  per  cent,  for  the  year  1921  and  16  per  cent,  of  the  selHng 
price  for  the  year  1922  and  thereafter. 

This  change  is  due  to  two  things.  First,  there  is  a  reduction  pro- 
posed by  the  Senate  Finance  Committee  to  32  per  cent,  as  the  max- 
imum surtax  rate,  which,  plus  an  8  per  cent,  normal  tax  rate,  would 
equal  40  per  cent,  and  be  the  highest  rate  payable  by  an  individual. 
Then  there  is  another  new  provision  in  the  statutes  referring  par- 
ticularly to  the  taxation  of  profits  on  the  sale  of  capital  assets.  It 
has  been  recognized  for  many  years  that  it  was  decidedly  unfair 
to  the  taxpayer  to  impose  a  tax  upon  the  profits  he  made  on  the 
sale  of  his  capital  assets  at  the  rate  of  surtax  which  was  intended 
primarily  to  measure  the  amount  of  tax  which  capital  could  earn 
in  a  twelve  month  period  when  he  may  have  held  this  very  property 
for  a  period  of  several  years.  Our  surtax  rates  went  up  to  70  per 
cent.,  practically.  The  result  was  that  men  would  not  sell  their 
properties  as  a  whole,  new  alignments  of  capital  were  prevented 
because  no  man  felt  that  he  wanted  to  be  taxed  at  a  maximum  rate 
of  approximately  70  per  cent,  on  the  profit  which  he  may  have  got 
ten  in  the  year  of  sale  but  which  really  was  the  profit  gained  over 
the  period  of  many  years,  5  or  10  years  perhaps,  so  the  Senate  has 
tried  to  remedy  that  situation  by  providing  that  where  a  man  has 
gains  from  the  sale  of  capital  assets,  the  net  gain,  which  shall  be  the 
selling  price  minus  the  cost,  or  the  value  on  March  1,  1913,  and 
such  expenses  as  are  clearly  applicable  to  the  sale  of  the  property. 


NATIONAL  MINE  TAX  CONFERENCE  11 

that  capital  net  gain,  or  profit,  shall  not  be  taxed  in  full  but  only  40 
per  cent,  of  such  profit  shall  be  included  for  the  purpose  of  the 
income  tax  on  individuals,  or  corporation  tax  on  corporations.  That 
provision,  however,  does  not  go  into  effect  until  1922,  so  that  if  the 
maximum  surtax  rates  remain  at  32  per  cent,  of  the  normal  and 
the  normal  tax  at  8  per  cent.,  the  highest  rate  could  not  be  more 
than  40  per  cent,  and  if  that  is  applied  to  only  40  per  cent,  of  the 
capital  gains,  the  highest  rate  of  tax  that  a  man  would  be  called 
upon  to  pay  upon  the  sale  of  his  capital  assets  would  be  16  per  cent. 

In  the  case  of  corporations  paying  a  15  per  cent,  income  tax, 
which  is  the  rate  proposed  for  1922,  on  40  per  cent,  of  the  profits 
arising  from  the  sale  of  capital  assets,  it  would  leave  a  net  tax  of 
6  per  cent  of  their  profits  to  the  federal  government.  This  is  an 
attempt  to  remedy  a  situation  that  everyone  has  deprecated  for 
several  years  and  is  a  considerable  step  in  advance  of  the  develop- 
ment of  our  federal  income  tax  system. 

I  do  not  recall  any  other  provisions  specifically  affecting  the  min- 
ing industry.  There  are  other  provisions  of  a  remedial  character, 
such  as  those  relating  to  exchange  of  property.  Under  that  law 
an  exchange  of  property  for  property  will  not  be  subject  to  in- 
come tax  or  excess  profits  tax  unless  the  property  received  in  ex- 
change has  a  readily  realizable  market  value.  Just  what  is  meant 
by  "readily  realizable"  is  perhaps  a  question  for  discussion  and 
construction  and  interpretation.  I  think  the  intention  of  Congress 
was  to  approach  this  general  rule,  which  perhaps  the  courts  may 
lay  down  with  respect  to  our  present  and  past  income  tax  laws, 
that  unless  a  man  receives  in  exchange  for  the  property  he  surren- 
ders, property  of  a  kind  and  in  an  amount  which  he  could  without 
question  go  out  and  sell  at  a  definite  price  within  a  reasonable  time 
after  the  exchange  took  place,  then  he  should  not  be  deemed  to 
have  received  something  which  is  the  equivalent  of  cash. 

That  would  apply  to  a  man  who  received  liberty  bonds  in  ex- 
change for  property  but  it  would  not  apply  to  a  man  who  received 
several  hundred  thousands  of  dollars  worth  of  shares  of  stock  upon 
the  incorporation  of  his  business  because  it  might  be  plainly  evitable, 
even  though  there  was  a  market  for  some  of  that  stock,  that  he 
could  not  go  out  and  sell  all  of  it  and  that  stock  is  not  worth  to  him 
the  equivalent  to  a  market  price  on  a  small  amount  of  stock  which 
might  be  sold.  The  Senate  and  the  House,  to  go  a  step  farther  in 
treating  the  question  of  exchange,  provide  that  not  only  must  the 
property  received  in  exchange  have  a  readily  realizable  market 
value  but  even  though  it  has  a  readily  realizable  market  value, 
under  certain  conditions  it  shall  not  be  taxable  in  any  event,  and 
those  conditions  are  that  when  any  property  held  for  productive 
use  in  trade  or  business  not  including  stock  in  trade  or  other  prop- 
erty held  primarily  for  sale,  is  exchanged  for  property  of  a  like 
kind  or  use,  no  gain  or  less  shall  be  deemed  to  arise.  One  manu- 
facturer may  have  a  certain  kind  of  machinery  and  another  a  differ- 


78        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

ent  kind  and  they  may  find  it  desirable  to  exchange.  Perhaps  A 
has  gotten  the  better  of  B  on  the  exchange  but  nevertheless  the 
law  specifically  states  that  no  gain  or  loss  shall  be  deemed  to  arise 
in  such  a  transaction. 

Secondly,  no  gain  or  loss  shall  be  deemed  to  arise  in  the  case  of 
a  reorganization  of  one  or  more  corporations  where  a  person 
receives  in  place  of  stock  or  securities  owned  by  him  stock  or 
securities  in  a  corporation  and  party  to  or  resulting  from  such 
reorganization.  In  any  reorganization  which  includes  the  reincor- 
poration of  a  company  or  the  merger  or  consolidation  of  two  or 
more  companies,  the  statute  now  specifically  provides  that  no  gain 
or  loss  shall  be  deemed  to  arise. 

The  1918  Act  and  the  preceding  acts  have  given  rise  to  a  great 
deal  of  controversy  on  the  question  of  how  much  richer  a  man 
has  become  because  he  incorporated  his  business.  This  will  exclude 
all  that  controversy  from  the  income  tax  law  in  the  future. 

The  third  instance  where  this  exemption  is  made  is  where  a  per- 
son, or  two  or  more  persons,  transferred  property  which  he  or  they 
may  own,  to  a  corporation.  In  other  words,  where  they  incorpo- 
rate a  business.  In  that  case  no  tax  shall  be  imposed  even  though 
the  stock  received  in  exchange  may  be  said  to  have  a  readily  realiz- 
able value.  Congress  has  tried  to  weed  out  of  taxable  profit  any 
alleged  or  apparent  profit  or  to  take  out  profit  which  might  arise 
on  an  organization  or  reorganization  or  any  exchange  of  property 
used  for  productive  purposes  in  a  business,  their  position  being 
that  those  are  not  transactions  primarily  intended  for  realization 
of  gain  but  they  are  realignments  of  capital  in  the  case  of  organ- 
ization or  reorganization  or  substitutions  for  the  more  expeditious 
construction  of  business  in  the  case  of  other  exchange. 

Then  there  is  another  provision  that  where  property  is  compul- 
sorily  or  involuntarily  converted  into  cash  or  its  equivalent  where 
a  man  has  to,  by  reason  of  condemnation  proceedings  or  loss  or 
anything  else,  involuntarily  get  his  money  for  his  property,  he 
will  not  be  taxed  if  he  takes  that  money  and  spends  it  on  similar 
property  performing  the  same  function  as  the  property  which  was 
taken  away  from  him,  or  destroyed. 

In  all  of  those  cases  the  property  received  in  exchange  for  the 
property  surrendered  shall  be  deemed  to  be  a  substitution  of  the 
assets  of  a  taxpayer.  He  can  ascribe  no  more  cost  or  value  to  the 
new  property  than  to  the  old.  He  merely  postpones  his  final  ac- 
counting for  income  tax  until  he  actually  does  sell  the  new  property 
for  cash  or  the  equivalent  of  cash. 

A  further  provision  in  that  connection  is  to  the  effect  tHat 
where  a  man  exchanges  property,  exchanges  stock,  let  us  say,  of 
one  corporation  for  stock  in  a  merger,  he  may  receive  a  little  cash 
also,  and  in  such  cases  the  cash  is  not  deemed  to  be  profit  but  goes 
to  reduce  the  cost  to  him  of  the  investment,  unless  the  cash  received 
exceeds  the  cost  to  him  of  the  investment,  in  which  case  the  excess 


NATIONAL  MINE  TAX  CONFERENCE  79 

of  cash  shall  be  deemed  taxable  profit  and  the  new  stock  will  cost 
him  nothing. 

There  are  a  number  of  changes  of  an  administrative  character 
in  the  law,  too  many  of  them  to  go  into  it  at  any  great  length,  and 
perhaps  of  no  particular  interest  to  this  audience.  These,  I  think, 
are  the  principal  changes  which  will  be  made  in  the  statute  when  it 
is  passed,  provided  no  amendments  are  made  and  no  compromises 
and  amendments  that  have  been  introduced  have  not  materially 
affected  the  law  in  these  respects. 

In  addition  to  the  Revenue  Bill  introduced  by  the  Ways  and 
Means  Committee  originally,  a  number  of  bills  have  been  intro- 
duced that  have  some  interest  to  the  mining  industry  and  some  of 
them,  if  there  was  any  serious  danger  of  their  passing,  would  con- 
stitute a  serious  blow  to  owners  of  natural  resources.  The  best 
known  of  these  bills  probably  is  the  Ralston-Nolan  Bill,  House  of 
Representatives  12397,  which  is  a  measure  introduced  into  the 
House  of  Representatives  proposing  to  impose  a  tax  of  1  per  cent, 
on  the  privilege  of  holding  land  and  natural  resources — coal,  oil, 
minerals,  timber,  water  power,  etc.  Only  land  in  excess  of  $10,000 
in  value,  irrespective  of  improvements  is  intended  to  be  taxed  thus, 
relieving  the  ordinary  farmer  and  small  holder  of  city  property. 
This,  of  course,  is  a  single  tax  and  class  legislation  and  will  no 
doubt  retard  the  economic  development  of  the  natural  resources. 

There  is  some  considerable  propaganda  issued  in  favor  of  this 
bill  and  some  considerable  support  of  the  bill  but  at  the  present 
time  the  chances  seem  to  be  that  the  measure  will  not  become  a  law. 
Of  course,  if  such  a  bill  became  a  law,  we  would  have  all  of  the 
administrative  difficulties  of  valuation  that  we  have  been  discussing 
for  the  last  two  or  three  days. 

The  Keller  Bill  is  another  proposal  along  the  same  line  as  the 
Ralston-Nolan  Bill  and  Mr.  Keller  has  also  introduced  a  second 
bill  proposing  a  differentiation  between  earned  and  unearned  in- 
come, classifying  as  unearned  income,  income  derived  from  rents 
of  land  or  other  properties,  which  includes  rental  from  mines. 
This  bill  proposes  that  the  surtax  rates  on  earned  income  shall  be 
one-half  the  rates  prescribed  by  the  revenue  account  of  1918  and 
the  surtax  rates  on  unearned  income  shall  be  twice  that  amount. 

Senator  Pittman  has  introduced  a  bill  in  the  Senate,  Senate  233, 
to  extend  the  exemption  from  excess  profits  tax  now  granted  to 
gold  mining  corporations  so  as  to  embrace  corporations  engaged 
in  mining,  milling  or  reduction  of  silver. 

Senator  King  of  Utah  has  introduced  a  bill.  Senate  2007,  with  the 
exemption  of  gold  mining  corporations  from  the  excess  profits 
tax  under  the  Revenue  Act  of  1918  shall  be  extended  to  any  tax 
imposed  by  Article  H  of  the  Revenue  Act  of  1917,  and  assessed 
but  remaining  unpaid.  Apparently  it  would  not  apply  to  those 
who  have  paid  their  taxes  but  those  who  had  been  assessed  and 
had  not  paid  them.    It  is  rather  serious  premium  on  delinquency. 


80        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

Senator  King  also  announced  his  intention  a  week  or  ten  days 
ago  to  abolish  depletion  altogether  in  the  calculation  of  net  income 
of  mines  and  other  corporations  having  natural  resources  but  I 
understand  he  has  recently  stated  that  he  will  not  introduce  that 
measure  and  if  he  should,  of  course  it  is  entirely  improbable  that 
any  action  would  be  taken  on  so  revolutionary  a  measure  as  to 
abolish  depletion  altogether  after  what  the  Supreme  Court  has  said 
on  that. 

If  there  is  no  further  discussion  of  the  Federal  Revenue  Act,  I 
shall  ask  the  permanent  Chairman  to  take  charge  of  the  meeting. 

MR.  ARMITAGE:  I  would  like  to  suggest  a  resolution  before 
the  meeting  adjourns.  We  have  had  a  very  interesting  and  thor- 
ough discussion  of  the  question  of  state  taxation.  A  great  deal  of 
this  discussion,  I  am  afraid,  will  be  lost  if  we  do  not  put  it  in  some 
concrete  and  definite  form.  Now  my  idea  is  this,  that  we  should 
recommend  here — we  can't  pass  a  resolution  as  we  are  only  a  sub- 
division of  the  Mining  Congress,  but  we  can  recommend  to  the 
Committee  on  Resolutions  of  the  Congress  that  they  pass  a  resolu- 
tion and  here  is  my  suggestion — that  we  recommend  to  the  Com- 
mittee on  Resolutions  that  the  Congress  pass  a  resolution  reading 
as  follows: 

"RESOLVED,  That  the  President  of  the  American  Mining  Congress 
appoint  a  committee  of  not  less  than  10,  with  authority  to  increase  its 
number,  to  study  the  question  of  state  taxation  of  mines  within  the 
United  States;  that  this  committee  be  empowered  to  collaborate  and 
act  with  a  similar  committee  appointed  by  the  American  Institute  of 
Mining  and  Metallurgical  Engineers  and  make  a  joint  report  of  their 
study  and  research,  said  report  to  be  delivered  to  the  Secretary  of  the 
Congress,  and  to  the  Secretary  of  the   Institute  as  soon  as  possible.** 

Now  those  committees  would  get  together,  make  a  careful  report, 
collaborate  and  systematize  what  we  have  collected  here  and  distrib- 
ute that  report  among  the  members  and  we  could  have  the  substance 
of  this  and  such  further  investigations  as  they  would  make  with 
the  aid  of  some  of  these  officials  from  the  various  states  who  have 
been  so  kind  as  to  come  here  and  give  us  their  full  information  and 
knowledge  and  their  reports.  We  could  give  a  very  comprehensive 
report  and  study  of  this  subject  of  state  taxation.  Before  this 
meeting,  Mr.  Kriegh  and  I  went  through  all  the  libraries  to  find  if 
there  was  any  such  book  written  and  the  only  one  we  could  find 
was  written  several  years  ago  by  Professor  Young  and  that  is  of 
no  value  because  the  laws  have  changed  so  and  altered  in  all  the 
states.  It  does  not  give  any  idea  of  the  subject  and  therefore  I 
thought  a  committee  of  that  sort  working  hard  and  conscientiously, 
in  the  next  three  or  four  months,  or  less  than  that,  could  get  out 
such  a  repiort.  It  may  say  that  I  have  talked  with  various  members 
of  the  Institute  and  the  president  of  the  Institute  and  he  is  fully  in 
accordance  and  in  favor  with  the  appointment  of  such  a  committee 
and  will  recommend  it  to  his  body.  He  is  in  accord  and  I  am  quite 
sure  they  will  follow  his  recommendation.  Therefore  I  propose 
such  a  resolution. 


NATIONAL  MINE  TAX  CONFERENCE  81 

CHAIRMAN  HOLMES:  Before  putting  the  motion  to  the 
meeting  I  would  like  to  say  a  word  or  two  about  this.  I  don't  see 
how  the  American  Mining  Congress  could  render  a  greater  service 
to  the  mining  industry  on  this  phase  of  its  many  activities  than  to 
gather  together  the  available  data,  data  which  exists  in  many  places, 
if  in  no  other  place,  in  the  minds  of  the  members  of  tax  commis- 
sions and  of  taxpayers,  get  the  available  data  together  so  that  we 
will  have  a  definite  premise  on  which  to  reason  together  again  next 
time  the  Congress  meets,  and  which  can  be  distributed  for  discus- 
sion and  consideration  among  those  who  give  time  and  thought  to 
tax  matters.    Will  somebody  second  the  motion? 

The  motion  was  seconded  by  Mr.  Kelly  and  was  carried. 

CHAIRMAN  HOLMES :  I  have  been  acting  as  temporary  chair- 
man of  the  meeting  in  the  absence  of  your  much  more  able  perma- 
nent Chairman  and  will  now  step  aside  and  let  the  permanent  Chair- 
man take  the  chair. 

Mr.  Armitage  then  took  the  Chair. 

MR.  FERNALD :  I  think  before  we  adjourn  we  should  regis- 
ter a  vote  of  thanks  to  the  delegate  from  Mexico  and  to  those  mem- 
bers of  the  state  commissions  who  have  been  good  enough  to  take 
their  time  and  give  their  effort  in  presenting  the  subject  to  us  so 
carefully  and  from  which  I  know  we  all  feel  we  have  so  greatly 
benefited,  and  that  the  Committee  on  Resolutions  of  the  Congress 
be  requested  to  spread  this  in  the  resolutions  of  the  Congress  on 
behalf  of  this  division. 

CHAIRMAN  ARMITAGE:  Gentlemen,  you  have  heard  the  mo- 
tion. Is  there  any  discussion?  If  not,  all  those  in  favor  please  say 
"Aye";  contrary  "No."    The  motion  is  carried. 

Is  there  any  other  business  before  the  meeting?  If  not,  a  motion 
to  adjourn  is  in  order. 

MR.  HOLMES.    I  move  we  adjourn. 

The  motion  was  seconded  and  carried  and  the  meeting  ad- 
journed at  5 :10  p.  m. 

Mr.  A.  P.  Ramstedt  of  Wallace,  Idaho,  being  unable  to  attend  the 
Tax  Conference,  submitted  the  following  communication  to  be 
placed  in  the  record  of  the  proceedings : 

"I  regret  that  important  business  coming  up  unexpectedly  at  the 
last  minute  prevents  rny  attendance  at  the  Chicago  Convention  of 
the  American  Mining  Congress  convening  on  Monday  next. 

"The  Mine  Operators  of  this  district  are  much  interested  in  the 
subject  of  State  and  local  taxation  of  mines  to  be  considered  at  the 
Mine  Tax  Conference,  and  as  I  will  not  have  time  to  prepare  a  state- 
ment of  our  views  on  the  subject,  I  submit  the  following  report  of 
my  discussion  of  the  subject  following  the  submission  of  the  Report 
of  the  Special  Committee  on  Mines  Taxation  of  the  National  Tax 
Association  at  Salt  Lake  City,  September  10,  1920,  which  report 
advised  the  ad  valorem  system  of  state  and  local  mines  taxation : 


82        PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

I  question  the  advisability  of  this  Association  giving  its  endorse- 
ment to  any  idea  or  scheme,  for  general  application,  in  the  matter 
of  state  and  local  taxation  of  mines.  From  a  purely  administrative 
standpoint  the  assessment  of  mines  in  states  like  Michigan  and  Min- 
nesota, where  the  deposits  may  be  quite  readily  measured  and  valued, 
may  be  quite  simple,  as  compared  with  the  assessment  of  the  deep 
fissure  mines  in  states  like  Idaho  and  Montana.  The  members  of  the 
main  tax  committee  of  this  Association,  and  most  of  us  here  probably 
are  aware  of  the  wide  diversity  of  opinion  on  this  question.  This 
diversity  of  opinion  arises  as  a  result  of  the  differences  in  the  conditions 
surrounding  this  industry  in  the  several  districts  throughout  the  coun- 
try as  a  whole.  There  is  such  a  wide  divergence  in  the  product  mined, 
in  the  value  of  the  product,  and  in  the  surrounding  conditions,  that 
I  am  inclined  to  believe  that  the  subject  may  more  profitably  be  treated 
from  the  standpoint  of  each  state,  rather  than  from  the  standpoint 
of  the  nation. 

I  have  given  the  subject  of  mine  taxation  in  Idaho  a  great  deal  of 
thought,  as  a  public  tax  official  and  as  a  private  citizen,  and  I  believe 
that  as  far  as  our  state  is  concerned,  a  tax  on  net  profits  is  the  most 
equitable  tax  that  may  be  applied  to  ore  itself.  If  we  must  have  a 
nation-wide  scheme,  I  believe  that  the  net  profits  tax  is  the  most  equit- 
able tax  that  may  be  applied  to  this  industry,  as  well  as  to  all  other 
industries  of  wasting  assets. 

The  benefits  to  be  had  from  our  material  resources  are  not  measured 
by  the  public  revenue  that  may  be  derived  therefrom  or  thereon.  The 
welfare  and  prosperity  of  our  people  here  in  the  west  depend  largely 
upon  the  development  of  our  material  resources.  To  tax  this  class 
of  property  on  its  full  value,  I  believe  generally  results  in  excessive 
taxation,  and,  if  so,  would  be  an  obstacle  to  investment  and  develop- 
ment. To  impose  a  tax  on  the  full  value  of  this  property,  annually  upon 
the  ore,  is  to  load  this  ore  down  with  its  annual  charge,  during  its 
entire  life,  to  be  met  with  eventually  out  of  the  sale  of  the  property 
itself.  This  property  does  not  produce  income,  in  the  sense  that  farm 
lands  produce  income.  When  the  ore  is  eventually  taken  out  and  sold 
it  is  gone;  it  cannot  be  replaced.  There  is  no  new  crop  coming  in. 
I  believe  that  a  tax  on  this  class  of  property  should  bear  some  relation 
to  income,  not  necessarily  to  value. 

No  one  with  his  eyes  open  is  going  to  invest  money  in  mining,  in 
states  like  Idaho,  where  the  initial  investment  is  so  great,  where  the 
returns  are  so  far  in  the  future,  and  where  the  hazards  are  so  great, 
and  take  a  chance  on  the  entire  profits,  or  a  great  portion  thereof  at 
least  being  taken  from  him.  I  believe,  that  the  tax  officials  in  my 
state,  who  have  given  this  matter  consideration,  agree  that  under  our 
net  profits  tax  law  the  mining  industry  is  bearing  its  full  share  of 
the  load. 

In  our  state  the  lands  and  mining  claims  are  assessed  on  the  ad 
valorem  basis,  the  land  itself  being  assessed  at  the  price  paid  the 
government  therefore;  all  machinery  and  equipment  improvements  are 
assessed  at  full  cash  value,  and  then  the  annual  net  proceeds  are 
taken  as  an  additional  assessment  value,  for  purposes  of  taxation. 

"In  this  connection  I  beg  to  also  submit  the  following  report  of 
the  discussion  of  the  subject  at  the  Salt  Lake  City  Conference  by 
Mr.  Samuel  Lord,  State  Tax  Commissioner  of  Minnesota : 

I  have  probably  given  as  much  thought  to  the  taxation  of  mining 
properties  as  any  other  man  in  this  country,  and  it  is  my  deliberate 
conclusion  that  the  only  real  way  of  taxing  mining  property,  that 
approaches  anywhere  near  a  scientific  method,  is  by  means  of  an  output 
tax.  Unfortunately  so  many  of  the  cities  and  villages  that  have  sprung 
up  on  the  iron  ranges  in  Minnesota  have  come  to  be  so  dependent  upon 


NATIONAL  MINE  TAX-  CONlJi'kR'E'i^tEi'''  '.•*••.         83 

the  mining  properties  for  their  support,  that  to  deprive  them  of  the 
general  property  tax  and  compel  them  to  obtain  their  revenue  in  any- 
other  way,  would  knock  the  props  from  under  them  completely,  would 
lead  to  chaos  and  would  be  most  unfortunate;  and  so  no  member  of 
our  commission  has  ever  advocated  the  adoption  of  an  output  tax  for 
the  mines  in  Minnesota  that  the  local  communities  would  be  compelled 
to  depend  upon  for  their  revenues. 

We  believe  that  any  change  in  the  taxing  system  must  leave  to  the 
villages,  cities  and  towns  the  ad  valorem  system  of  taxation  for  the 
support  of  their  schools  and  for  the  support  of  their  local  governments, 
but  I  do  not  know  of  any  good  reason  why  the  state  is  not  fully  justi- 
fied, if  it  sees  fit,  in  obtaining  its  revenues  from  the  mines  by  means 
of  an  output  tax.  I  am  confident  that  it  can  be  proved  conclusively  that 
in  a  long  series  of  years — say  40  or  50 — the  mining  companies,  by  pay- 
ing an  output  tax  to  the  state,  which  would  be  no  more  burdensome  than 
the  state  taxes  they  now  pay,  would  turn  into  the  state  treasury  a 
very  much  larger  amount  of  revenue  than  they  will  be  compelled  to 
pay  under  a  general  property  tax.  And  I  say  this  with  entire  feeling 
of  friendliness  towards  the  mining  companies.  If  ability  to  pay  is  a 
proper  criterion  for  taxation,  and  I  believe  that  it  is,  one  of  the 
cardinal  principles,  this  conclusion  certainly  is  sound. 

The  ability  of  a  mining  company  to  pay  taxes  depends  upon  its 
profits,  and  its  profits  depend,  of  course,  entirely  upon  output.  If  an 
output  tax  were  imposed  upon  the  mines  of  Minnesota  which  would 
produce  no  more  revenue  than  they  pay  the  state  today,  in  the  end 
they  would  turn  into  the  state  treasury  a  much  larger  amount  of  money 
than  they  would  under  a  general  property  tax.  The  correctness  of  this 
statement  is  so  evident  that  it  needs  no  elaboration.  The  known 
merchantable  tonnage  of  iron  ore  in  Minnesota  is  approximately  1,300,- 
000,000  tons.  We  are  mining  on  the  average  about  37,000,000  tons  a 
year,  and  if  no  more  merchantable  ore  is  disclosed  (a  thing  which  is, 
of  course,  unthinkable)  the  mines  will  be  exhausted  in  about  2)7  years. 
The  mining  companies  paid  in  state  taxes  last  year  approximately 
$2,300,000.  With  an  output  tax,  having  a  rate  that  would  yield  the 
same  amount  per  annum,  at  the  end  of  the  2>7  year  period  they  would 
have  paid  in  taxes  in  the  neighborhood  of  $84,000,000.  And  they  would 
be  just  as  able  to  pay  $2,300,000  in  taxes  the  year  they  take  out  the 
last  37,000,000  tons  as  they  are  to  pay  that  amount  today.  Under 
the  general  property  tax,  if  the  state  rate  remains  the  same — and  of 
course  we  hope  for  it  to  decrease  rather  than  increase — the  taxes  from 
the  mines  will  decrease  about  3  per  cent  a  year  until  they  reach  the 
vanishing  point.  Of  course  there  are  many  factors  I  have  not  taken 
into  consideration  that  will  necessarily  change,  to  some  extent,  the 
figures  I  have  given,  but  such  figures  are  sufficient,  I  feel  sure,  to 
demonstrate  the  points  I  am  endeavoring  to  make;  that  an  output 
tax  from  the  standpoint  of  the  state  is  a  much  more  desirable  form 
of  taxation  than  the  general  property  tax,  and,  if  the  rates  are  fair, 
that  it  will  impose  no  unjust  or  unusual  burden  upon  the  mining  com- 
panies. For  these  and  for  other  reasons  that  I  shall  not  trespass  upon 
your  time  to  give.  I  have  always  been  in  favor  of  an  output  tax  for 
state  purposes,  in  lieu  of  the  general  property  tax. 

"There  can  be  no  doubt  that  the  discussions  and  treatises  at  our 
annual  conventions  of  all  questions  pertaining  to  taxation  of  state 
have  been  of  greatest  value  and  this  applies  to  the  discussion  of 
state  and  local  taxation  of  mines.  However,  as  there  is  so  wide  di- 
versity of  opinion  on  this  question,  arising  as  result  of  the  dilter- 
ence  in  conditions  surrounding  mining  in  the  several  states,  I  again 
urge  the  inadvisability  of  The  American  Mining  Congress  giving  its 


84        FirM^^plUGS  0^  j^MEJ^ICAN  MINING  CONGRESS 

endorsement  to  any  scheme  for  general  application  in  the  matter  of 
state  and  local  taxation  of  mines/* 

'  The  following  resolutions  were  adopted  by  the  American  Min- 
ing Congress  in  convention  assembled  as  a  result  of  the  national 
mine  tax  conference  held  at  the  Congress  Hotel,  Chicago,  Octo- 
ber 17-22. 

RESOLUTION   NO.  4 

RESOLVED,  That  the  President  of  The  American  Mining  Congress 
appoint  a  committee  of  not  less  than  ten,  with  authority  to  increase 
its  number,  to  study  the  question  of  state  taxation  of  mines  within 
the  several  mining  states  of  the  Union  and  report  to  the  Secretary 
of  the  Congress  as  soon  as  practicable. 

RESOUTION  NO.  5 

RESOLVED,  That  this  Conference  register  a  vote  of  thanks  to  those 
members  of  State  Tax  Commissions  who  have  been  good  enough  to 
take  their  time  and  give  their  efforts  in  presenting  to  this  conference 
so  carefully  the  subject  of  the  taxation  and  revenue  systems  of  their 
respective  states,  from  which  we  have  so  greatly  benefited;  and, 

BE  IT  FURTHER  RESOLVED,  That  the  Committee  on  Resolutions 
of  The  American  Mining  Congress  be  requested  to  spread  this  vote  of 
thanks  in  the  proceedings  of  The  American  Mining  Congress  in  behalf 
of  this  division. 

RESOLUTION  NO.  6 

WHEREAS,  The  discussion  at  this  Convention  particularly  those  of 
the  National  Tax  Conference,  have  shown  that  there  is  a  tendency  in 
certain  states  to  discriminate  unfairly  against  mining  properties  and 
mining  enterprises  in  matters  of  taxation  and  thereby  curtail  the  min- 
ing industry  and  discourage  the  development  of  mines  in  many  localities, 
and  discouraging  those  who  otherwise  would  take  reasonable  risks  in 
developing  the  mining  resources  of  the  country. 

BE  IT  RESOLVED,  That  the  American  Mining  Congress  protest 
against  all  such  forms  of  taxation  which  directly  or  indirectly  dis- 
criminate against  mining  property  or  mining  enterprises  and  all  forms 
of  taxation  which  have  for  their  purpose  the  object  of  obtaining  any 
greater  amount  of  revenue  from  mining  property  or  mining  operations 
than  is  obtained  from  other  property,  and 

BE,  IT  FURTHER  RESOLVED,  That  the  Tax  Division  of  The 
American  Mining  Congress  be  authorized,  upon  request  of  any  State 
Chapter,  to  provide  a  representative  to  appear  before  any  board,  com- 
mission or  other  legislative  committee  and  to  present  information  look- 
ing to  the  prevention  of  any  such  discriminatory  or  inequitable  forms 
of  taxation  and  that  the  Tax  Division  be  authorized  to  use  all  available 
facilities  of  this  organization  for  this  purpose  and  for  the  purpose  of 
carrying  on  a  campaign  of  education  in  matters  of  mine  taxation. 


INDEX 

Anaconda  Copper  Mining  Co 24 

Arizona  Methods  of  Taxation — By  Hon.  Chas.  R.  Howe 51 

Arizona  Tax  System— By  T.  O.  McGrath 66 

Armitage,  Paul — Purpose  of  Conference 3 

Louisiana  Tax  Commission  Report 33 

Remarks    of 18-45-80 

Armson,  Hon.  J.  G. — Mine  Taxation  in  Minnesota 34 

Remarks  by 47--74 

Ballard,  Hon.  Thurston 62 

Barrett,  Hon.  L.  P.— Michigan  Tax  Methods 56 

Bunch,  Burton — New  Mexico  Tax  Laws 24 

Bureau  of  Internal  Revenue — Address  by  Robert  N.  Miller 11 

Colorado  Tax  Laws — Remarks  by  E.  C.  Stimson 19 

Committee  on  State  Taxation  of  Mines — Resolution 80 

De  Silva,  Luis — Taxation  of  Mines  in  Mexico 30 

Dick,  J.  C. — Valuation  of  Mines 45 

Farm  Lands,  Taxation  of,  in  Minnesota — Hon.  J.  G.  Armson 48 

Fay,  Albert  H 11 

Federal  Legislation — By  George  E.  Holmes 75 

Federal  Tax  Administration — By  Robert  N.  Miller 13 

Fernald,  H.  B.,  Remarks  of 72 

Resolution    81 

Finlay,  J.  R 57 

Holmes,  Geo.  E.— Remarks  by,  re  State  and  Federal  Taxation. .  .71-72-75 

Howe,  Hon.  Chas.  R.— Remarks  of 4(M2 

Address  re  Arizona  Tax  Laws 50 

Hunner,  E.  E 40 

Idaho,  Mine  Taxation  in— By  A.  P.  Ramstedt 81 

Income  Taxes,  Federal — Address  by  Robt.  N.  Miller 13 

Kelly,  D.  M.— Tax  Laws  of  Montana 24 

Kreigh,  McKinley  W.— Remarks  of 5-29 

Legislation,  Federal  Tax — By  George  E.  Holmes 75 

Lord,    Samuel 82 

Louisiana  Assessment  and  Taxation  Commission — Report  of 33 

McGrath,  T.  O.— Arizona  Tax  System 66 

MacChesney,    Nathan    William  —  National    Conference    of    Commis- 
sioners on  Uniform  State  Laws 5 


PROCEEDINGS  OF  AMERICAN  MINING  CONGRESS 

Mackenzie,  A.  G. — Mine  Taxation  in  Utah 63 

Remarks  by 7Z 

Mexico,  Taxation  of  Mines  in — By  Luis  de  Silva 30 

Michigan  Taxation  System — By  L.  P.  Barrett 56 

Miller,  Robt  N. — Address  on  Federal  Tax  Administration .• 11 

Remarks    of . .  ^ 56 

Minnesota  Iron  Ore  Reserve — By  C.  ZapfTe 67 

Minnesota,  Mine  Taxation  in — Address  of  Hon.  J.  G.  Armson 34 

Montana  Tax  Laws— By  D.  M.  Kelly 24 

New  Mexico  and  Colorado,  Tax  Laws  of — By  E.  C.  Stimson 19-22 

Northern  Pacific  Railway  Company 

Occupational  Tax  Law  of  Minnesota 40-67-72 

Ramstedt,  A.  P. — Communication  re  Mine  Taxation 81 

Resolutions  4,  5  and  6,  adopted  by  Convention: 

Re  State  Taxation  of  Mines 84 

Re  Special  Joint  Tax  Committee  on  State  Taxation  of  Mines 80 

Re  Thanking  Members  of  State  Tax  Commissions  for  Co-operation  82 

Republic  Iron  &  Steel  Co 65 

Stimson,  E.  C. — Address  on  Tax  Laws  of  New  Mexico 19 

Tax  Division,  American  Mining  Congress 3-84 

Thacher,  Arthur— Remarks  of 39-43 

Remarks  re  Valuation  of  Mines 60-61 

Uniform  State  Laws,  National  Conference  of  Commissioners  on 5 

Utah,  Mine  Taxation  of— By  J.  C.  Dick 45 

Mine  Taxation  in — By  A.  G.  Mackenzie 63 

Valuation  of  Mines — By  J.  C.  Dick 45 

Webb,    Frank 65 

Zapff e,  C. — Iron  Ore  Reserves  in  Minnesota 67 


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